American Express radio commercials are touting a women’s money group, The Smart Cookies, who, we’re told, got control of their personal debt problems within two years.

The five women they featured collectively owed $50,000, which seems small relative to the clients I see.

But what set my teeth to grinding was one woman’s assurance that it is possible to master debt problems “and still get the things you deserve”.

Arghhhh!

In my view, it is this sense that one “deserves” certain purchases that underlies a significant portion of the overspending problem.  What is the source of this belief that we are entitled to a certain standard of living or accumulation of goods and experiences?

Mercifully, the radio spot I heard didn’t go into the details of the Smart Cookies’ approach to money, but if their connection with American Express didn’t put me off, their announced sense of financial entitlement did.

My colleague Jonathan Ginsberg writes about his reluctance to provide legal advice or second opinions by email. After all, he points out, it is our command of the law that is our inventory. Give it away and you go out of business.

I have a more profound reason to approach questions by strangers with caution: I have only the facts that the sender has chosen to disclose for purposes of my analysis. Often, the facts the writer thinks are central are either irrelevant or incomplete. Without all of the necessary facts, my opinion may be fatally flawed.

When I meet with a client, I have an opportunity to ask questions, develop the facts, and look for other pieces of the picture that either support or counter the facts the client has proffered. That back and forth allows me to establish the facts, then offer an opinion that is grounded in the complete factual picture.

Meeting with a client with Truth in Lending claims the other day reminded me about the power of the Bankruptcy Code to facilitate the sale of property subject to disputed liens while preserving the claims against a secured creditor.

These clients had property they wanted to sell but the amount they owed the holder of the first was in dispute. They asserted that the lender had violated Truth in Lending and had elected to rescind the loan. The parties were fighting about how much the clients had to tender to the lender as a result of the rescission.

Generally, a seller has to pay off all the liens on the property in order to deliver clear title to the buyer. Outside of bankruptcy, they might have to pay the creditor’s claim and sue to get it back. There is some risk of losing a TILA claim upon sale, as well.
Under Section 363 (f), the bankruptcy court can order the property sold and the liens to attach to the proceeds of sale. Thus, the debtor/seller and the secured creditor can argue later over the fund of money created by the sale, rather than having to resolve disputes before sale of the property. The costs of preserving the property in the interim are eliminated.

This section of the code speaks of the trustee as the seller, but the Chapter 13 debtor has most of the same powers as are granted to a Chapter 7 trustee. One more in my long list of why I love Chapter 13.

The latest governmental response to the mortgage mess is an offer for a 30 day hold on foreclosures offered as a voluntary program by six large mortgage servicers. Sorry, folks, but 30 days is not enough time to solve any one family’s housing problem, let alone the country’s problem.

The two things that are necessary to make any meaningful difference in houses lost to foreclosure is 1) a real willingness on the part of lenders to change the terms and perhaps the principle balance on loans, and 2) the manpower to staff a loss mitigation effort. Right now, I’m seeing neither.

Thirty days or an offer to tack the arrears on to the end of the loan does not solve the problem where the house is worth less than is owed or the arrears have arisen on a negatively amortized loan on impossible terms. Those are fundamental, structural problems in the loan. A remedy requires not a Boy Scout with a band aid but a surgeon with a scalpel.

My colleague Jonathan Ginsberg pointed out the play that the bankruptcy filing numbers are getting in the press: his local paper reports that bankruptcy filings are soaring.
In looking at the filing numbers, it is important to remember that 2006 was an aberrational year in consumer bankruptcy. The bankruptcy “reform” act became effective mid October, 2005. Huge numbers of people rushed to file bankruptcy before the law changed.

After the law changed, there was a lull in bankruptcy filings. I think two things are behind the low filing numbers in 2006. People who were on the fence about filing bankruptcy accelerated their decision to file because of the consumer-hostile provisions of BAPCPA, so those folks who normally would have filed in 2006, filed in 2005 to beat the change.

Secondly, after the amendments became effective, it took a while for the public to realize that bankruptcy relief was still available and for bankruptcy lawyers to master the changes in the law. Some bankruptcy lawyers left the practice and debt collectors told debtors that bankruptcy was not longer available to them or for the kind of debt that collector was trying to collect.
Certainly, there was no drop off in 2006 of people up to their ears in impossible debt; prosperity did not break out because we erected barriers at the bankruptcy court door. People’s ability to deal with the debt they had remained unchanged.

So, one should be cautious in drawing conclusions from a comparison between bankruptcy filing numbers between 2006 and 2007. That said, my experience suggests that there will be an onslaught of bankruptcy filings in 2008: the mortgage meltdown, slowing economy, and higher awareness of bankruptcy’s continuing availability will make debt relief look good to the consumer.