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Items by Chris Kramer

Middle-Class the New Face of Bankruptcy

Posted: November 19th, 2009, 2:20pm PST by Chris Kramer

The middle class is increasingly resorting to bankruptcy despite college education, home ownership and other historical signs of success, according to a new study.

While the middle class's investments in higher education and real estate have typically shielded them from the hardest economic storms, that is no longer the case.

"The Vulnerable Middle Class: Bankruptcy and Class Status," a new study by Elizabeth Warren, Harvard Law School Leo Gottlieb professor of law, and Deborah Thorne, Ohio University associate professor of sociology illustrates how bankruptcy demographics have changed in recent decades.

An exclusive preview of Warren and Thorne's new book by USA Today shows how bad mortgages, rising unemployment, and the trappings of success led millions of Americans into debt.

Warren and Thorne compared annual bankruptcy filings from 1991 through 2007, and saw an increasing trend of middle class Americans, dispelling the myth that bankruptcy was a tool for the destitute or extreme spenders.

The article profiles several bankruptcy filers, including a single mother who went from earning $275,000 a year to filing bankruptcy after starting her own business, as well as a couple nearing retirement whose dropping home value left them without a safety net.

The study's authors admit that much of the data comes from recent "boom" years, and ends at the same point the recent recession began.

They expect that looking back at the past two years—and likely into the future—will show an even greater upswing in middle class Americans turning to bankruptcy protection.

New Bankruptcy Chapter Proposed by Congress

Posted: November 18th, 2009, 10:37am PST by Chris Kramer

A new amendment to the U.S. bankruptcy code could help troubled financial institutions reorganize their debts more effectively and eliminate the status of "too big to fail" that has prompted government intervention over the past two years.

H.R. 3310, introduced by Rep. Spencer Bachus (R-AL), is called the Consumer Protection and Regulatory Enhancement Act, and would create a Chapter 14 bankruptcy under which institutions to file bankruptcy without disrupting the nation's financial stability.

The bill is in response to the government's inconsistent reaction to the collapses of financial holding companies such as Lehman Brothers, Bear Stearns and AIG.

At the American Bankruptcy Institute's 2009 Legal Symposium in Washington, D.C., this week, Congressional staffer Daniel Flores spoke on a panel about the need for the new chapter, according to Reuters.

"No one trusts the bankruptcy bar and the courts. That's the problem," said Flores. "We don't need to abandon bankruptcy, we need to abandon government intervention that can seem inconsistent and panicky."

Most importantly for taxpayers, he bill would completely remove the option for government bailouts, leaving troubled businesses with no other safety net besides bankruptcy.

Rep. Bachus' bill, which is currently under committee consideration, would have no effect on consumer bankruptcy laws.

If passed it would be the first amendment to U.S. bankruptcy laws since the Bankruptcy Abuse Prevention & Consumer Protection Act of 2005.

Florida Residents Join to Keep Island Resort Afloat in Bankruptcy

Posted: November 17th, 2009, 10:41am PST by Chris Kramer

On Amelia Island, a coastal community off of Florida's Atlantic coast, a group of local investors have joined up to save a prominent resort from going under.

Amelia Island Plantation is a 30-year-old destination resort for vacationers and conference-goers. Recently, the resort fell on hard financial times, as many businesses have during the recession.

Wages for employees were cut, and other local businesses who depended on resort customers saw their business dwindle.

But rather than watch a local landmark and business stimulant disappear, a group of 22 local investors signed an agreement to keep Amelia Island Plantation financially viable. The investor group is called Red Maple Investors. Every member of the group is also a homeowner on the island.

Structured Bankruptcy Protection

The agreement states that the Plantation resort will seek Chapter 11 bankruptcy protection, and restructure its debts and liabilities. During this process, the resort will continue to operate normally.

Red Maple Investors will provide financial and strategic support to help Amelia Island Plantation through this Chapter 11 restructuring process.

The group's members are hardly amateur investors, however. John Griswold, for example, is the president of Harbor Hotels, and has accrued more than 30 years of experience operating high-class hotels.

"Our investors believe in the potential for the long-term success of Amelia Island Plantation," Red Maple Investors founding member Robert C. Smith told First Coast News. "All of us in RMI want to protect this little paradise we have come to love. And, we are willing to put up our own money to assure its success far into the future."

Community Finances Tied Together

As would be expected on an island of that size, the financial impact of the resort extends to other community businesses as well. The 700 employees and the 240,000 yearly visitors to the resort help many area businesses.

One such business, Dub Mullis’s fruit stand up the road from the resort, struggled along with Amelia Island Plantation.

"My customers are a lot of people from the resort. A lot of workers, people who live there and also visitors to the island," Mullis said.

A decline in corporate bookings at the resort were one of the main reasons for its struggles. The drop in large-scale events meant millions of dollars in lost revenue as companies tightened their belts.

October Foreclosures Dip from September, Soar from ‘08

Posted: November 13th, 2009, 8:46am PST by Chris Kramer

RealtyTrac, a company that follows foreclosure data for the United States, released October numbers on Thursday. It seems foreclosure rates have decreased slightly since last month, but are still significantly higher than they were a year ago.

Foreclosure by the Numbers

Here’s a look at the statistical breakdown of recent foreclosure activity in the country.

332,292 property filings in October: This number includes three specific types of action: notices of bank repossession, auction and borrower default. That means one in every 385 American households is in some phase of the foreclosure process.
Percentage changed: The numbers translate to a three percent drop from September of this year, but a 19 percent increase from October of 2008, suggesting that the moderate improvement is only relative.
Estimate for the year: Based on information gathered thus far, RealtyTrac is reportedly predicting as many as 3.4 million foreclosures this year, a 48 percent jump from 2008’s total of 2.3 million.

These numbers may seem astoundingly high, and they are – remember that this recession started in the real estate industry, and continues to plague homeowners.

So why are foreclosures still inching up even when the economy is showing signs of recovery? Most likely, sources suggest, the unemployment rate is to blame. Even though consumer spending may be on the rise, millions of Americans are still without jobs – and without serious hope of getting jobs in the near future, which means missed house payments.

Foreclosure Prevention or Just Delays?

The Obama administration has taken some action to try to ease the pain in the housing market. The Home Affordable Mortgage Program, an initiative designed to encourage lenders to offer mortgage loan modifications with cash incentives, apparently helped as many as 20 percent of eligible borrowers last month, up from 16 percent in September.

But those numbers still represent far less than the majority of struggling homeowners – and some other laws may be offering less help than they seem to be.

Nevada, for example, allegedly has a law in place that mandates foreclosure mediation for at-risk borrowers. And, while sources indicate that the state saw a drop in foreclosures this month, it could very well see a jump later on, if and when mediations have been completed and proven unsuccessful.

Additional Resources

Home Affordable Modification Guidelines

Federal Reserve Sets Limits for Debit Card Fees

Posted: November 12th, 2009, 11:54am PST by Chris Kramer

Debit card users will have to opt-in to overdraft fees for ATM withdrawals and one-time purchases, according to a new set of ruled unveiled by the Federal Reserve Board.

The measures, which will take effect July 1, 2010, are part of a series of decision issued by the nation's central bank to limit abusive practices by banks announced over the past year.

Authorizing Fees

Under the new rules, all debit card holders must be given notice of the bank's policies, including those on overdraft fees, in plain language. Cardholders can sign up to be charged fees or not, and banks cannot change the terms of service afterward.

Banks will still be allowed to charge overdraft fees for recurring debt card purchases, such as recurring utility bills that are automatically charged, as well as on bounced checks.

The measure is mainly aimed at one-time debit card purchases or ATM withdrawals that can often result in fees greater than the purchase amount.

Protecting Consumers

"The final overdraft rules represent an important step forward in consumer protection," said Federal Reserve Chairman Ben S. Bernanke in a press release. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Declining Transactions?

Of course, those who overdraw their bank accounts won't be given free money by their banks.

Overdraft protection allows banking customers to make payments even when their funds are limited, and are charged a fee for the convenience.

Those who opt-out of overdraft protection may instead see their transactions declined if they attempt debit card purchases when their accounts are low. However, any overdraft transactions approved by the bank cannot result in fees.

The Year of the Prepackaged Bankruptcy

Posted: November 11th, 2009, 8:41am PST by Chris Kramer

2009 has seen a dramatic rise in so-called prepackaged bankruptcy filings that streamline the bankruptcy process for large companies, according to a recent report from Reuters.

Companies filing for traditional bankruptcy can find themselves going through several years of Chapter 11 bankruptcy filing, which can interrupt business and create uncertainty.

Instead, in a prepackaged bankruptcy, companies can agree upon and arrange reorganization plans with their creditors before actually filing for Chapter 11 bankruptcy. Creditors have sometimes even voted on the prepackaged plan before it is filed.

The prepackaged bankruptcy is a form of agreement that is even more accelerated than a pre-negotiated bankruptcy in which companies and creditors agree on some but not all stipulations of the plan.

Prepackaged Plans Increase 300 Percent

There have been 30 prepackaged bankruptcies this year, the Reuters report notes—a 300% increase from just 10 such arrangements in 2008. With 164 companies that have public equity and debt who have filed for Chapter 11, the prepackaged bankruptcies represent 18% of the total number filed.

The much-publicized CIT Group Inc bankruptcy was arranged with a prepackaged bankruptcy agreement, as were those of other troubled companies like Six Flags Inc, Charter Communications Inc, Panolam Industries International Inc and Lear Corp. According to Reuters, the 30 prepackaged bankruptcies in 2009 represent some $124 billion in assets.

Fast Filings in Prepackaged Bankruptcy

With the prepackaged bankruptcy, companies can turn around a Chapter 11 filing in a matter of months, even when dealing with a huge company like CIT and its $80 billion in assets, which expects approval of its bankruptcy filing in December, a mere month after filing.

The results are less uncertainty about what the terms of the bankruptcy will be, and less disruption of the business in question.

Six Flags Inc, the world’s largest regional theme park operator, filed for bankruptcy in mid-2009, and continues to negotiate a finalized plan. Robert Rossiter, the Chief Executive of Lear Corp., which makes automotive seats and electronics, recently said in a statement that Lear Corp. had moved through the financial restructuring process without missing a beat operationally.

According to Reuters, the traditional Chapter 11 filing, without a prepackaged bankruptcy, is now often referred to as a free fall.

Orlando Shooting Suspect Had Recently Filed Bankruptcy

Posted: November 9th, 2009, 10:26am PST by Chris Kramer

The suspect in the shooting in Orlando last week that left one dead and six injured had a checkered financial past—including unemployment and a recent bankruptcy filing.

In 2007, suspect Jason Rodriguez was fired from engineering firm Reynolds, Smith & Hills, the location of the shooting, according to The New York Times. According to Rodriguez's public defender, he believed his former employers were blocking his attempts to receive unemployment benefits.

Rodriguez filed Chapter 7 bankruptcy in May, 2009, listing assets of $4,675, mostly from an unreliable 2002 Nissan XTerra, and debts at $89,873.31, including child support, back taxes and student loans.

At the time of his bankruptcy filing, Rodriguez was working at Subway as a "sandwich artist", but recently quit the position due to shortage of hours, according to CNN.

Chapter 7 Bankruptcy Exemptions at Heart of Supreme Court Case

Posted: November 7th, 2009, 6:09am PST by Chris Kramer

Earlier this week, the U.S. Supreme Court heard arguments in a case that could affect many Americans who seek financial relief from Chapter 7 bankruptcy. Here’s a look at what’s going on.

Background: Chapter 7 Bankruptcy

Chapter 7 bankruptcy (sometimes called liquidation), works by giving debtors a complete discharge of many non-secured debts. Though the debts are forgiven, some filers must sell off some of their property to raise money to pay whatever they can against the debts.

Filers are also entitled to keep specific items of property; these exemptions are determined by state law.

The Case: A Caterer’s Equipment

In the case before the Court…

A caterer filed for Chapter 7 bankruptcy. When she filed in 2005, she indicated on her forms that the equipment required to run her catering business was worth $10,718 – exactly the value of property her state permitted in exemptions.
An auctioneer valued her equipment. He estimated that her gear was worth closer to $17,000, which would mean she’d have to auction some of it off to repay her creditors.
Her trustee never filed an objection. William Schwab, the bankruptcy trustee assigned to the case, failed to file an objection before the deadline. Though he reportedly filed a motion in court to have the caterer sell her equipment to raise $10,718, she countered that, because of the missed deadline, this request was unfounded.

So far, the bankruptcy court and the appellate courts have sided with the caterer here, essentially ruling that, because the trustee did not file his motion in time, it cannot stand.

Possible Implications

It seems the Supreme Court justices have expressed two major concerns:

Trustees have insufficient time to review all their cases. This could lead to more oversights like the one in the caterer’s case and could promote bankruptcy fraud among unscrupulous filers.
Filers have motivation to undervalue their possessions. Naturally, if there’s a chance your trustee isn’t reviewing your case that carefully, that provides an incentive to underestimate the value of your possessions so you have a chance of keeping more stuff.

Take-Home Lesson

Reports indicate that the caterer who filed for bankruptcy clearly filled out her forms and indicated that she had no exempt property, which suggests that the error of careless oversight may indeed be her trustee’s. If you are filing for Chapter 7 bankruptcy, you may want to speak with a bankruptcy lawyer who can help make sure you take necessary steps to protect yourself and your property when you file.

Additional Resources

Summary of Significant Changes Implemented by BAPCPA in 2005 (PDF)

Senate Passes Unemployment Extension Bill

Posted: November 5th, 2009, 8:57am PST by Chris Kramer

Unemployed Americans will receive up to 20 additional weeks of unemployment benefits under a bill passed by the Senate this week, according to CNN.

The Senate voted 98-0 Wednesday to provide continued relief to the estimated 15 million Americans currently drawing unemployment benefits. The bill provides at least 14 additional weeks of benefits, and 20 weeks in those states where unemployment is 8.5% or greater.

The bill now moves to the House, which passed a similar bill in September providing up to 13 additional weeks of benefits. President Obama has shown support for extending unemployment benefits, and is expected to sign the bill.

In the Senate bill, benefits would be extended to those who exhaust their current benefits before December 31. Those whose benefits have already run out could reapply for additional benefits.

The additional unemployment would be funded by a supplemental unemployment tax on employers that would run through June 30, 2011.

7,000 Unemployed Lose Benefits each Day

CNN reports that 7,000 unemployed workers exhaust their benefits every day. And with just 3 million jobs for 15 million unemployed (a figure that doesn't include under-employed or those who've given up on looking), that rate isn't expected to slow soon—without help.

In September, the unemployment rate reached a 26-year high at 9.8%. October's unemployment rate, due out tomorrow, isn't expected to decline. Most experts expect unemployment to crest above 10% in 2010.

Unemployment and Bankruptcy

Unemployment is also closely tied with the bankruptcy filing rate. Personal bankruptcy filings reached a four-year high in October, with 135,914 consumer filings, according to the American Bankruptcy Institute. That total is the highest since the new bankruptcy law went into effect in October, 2005.

Update: The House passed the Senate's unemployment benefit extension bill Thursday afternoon with a vote of 403-12. President Obama is expected to sign the bill Friday.

Layoffs: Johnson & Johnson to Cut 7% of Jobs

Posted: November 4th, 2009, 8:19am PST by Chris Kramer

Health care giant Johnson & Johnson announced Tuesday that it would eliminate up to 8,000 jobs worldwide, or 7% of its workforce, as a cost-savings measure, according to CNN.

Many of the cuts will come from management levels as the company revises its corporate structure. As a result, Johnson & Johnson expects to save between $800 million and $900 million this year.

Johnson & Johnson manufacturers household health and beauty products, like soaps and mouthwash, along with pharmaceuticals and medical devices. The recession has impacted both sides of J&J's business.

The majority of the job cuts will occur outside of the U.S., according to CEO Bill Weldon, and will occur across all aspects of the business.

Johnson & Johnson's restructuring has been occurring over the past few years, as it attempts to fight off competing drug manufacturers and generic versions of its own drugs. In July, 2008, J&J cut 4% of its workforce. In April, 2009, about 900 U.S. sales jobs were eliminated.

Commercial Bankruptcy Filings Jump 7% in October

Posted: November 3rd, 2009, 10:36am PST by Chris Kramer

On the heels of bad news for small businesses with the bankruptcy of CIT Group Inc. comes news from The Wall Street Journal that business bankruptcy filings rose 7% in October, after falling for several consecutive months.

A total 7,771 businesses filed for bankruptcy protection in October, up from the 7,271 in September. The increase continues a yearly trend of rising bankruptcies from the same time last year, despite what had been a drop in filings from month-to-month in August and September.

A report from the business information company Equifax Inc. suggests that, from the third quarter of 2008 to the third quarter of 2009, commercial bankruptcy filings among small businesses increased by 44%.

The Wall Street Journal cites the same tight credit market and decreases in consumer demand for products fueling the wider recession as continued causes for businesses going into bankruptcy.

Retail, Real Estate Hardest Hit

Retail businesses and real estate are the industries that continue to lead in bankruptcy filings. The impact of flagging success in these areas, however, can lead to a trickle-down effect with a much broader reach and negative financial impact on industries like home building and manufacturing, according to Georgia State University College of Law bankruptcy professor Jack Williams, who spoke to WSJ.

Bankruptcy filings are a lagging economic indicator so it's likely that we'll see bankruptcy filings increase for the next several quarters, Williams told the journal.

The bankruptcy of CIT Group Inc., one of the largest lenders to small- and medium-sized businesses, will only serve to tighten credit markets, many believe, in an already troubling environment for small businesses. CIT finances a wide array of businesses, from retail operations like Dunkin' Donuts store operators, to energy companies.

In a positive turn, the Equifax report did note that bankruptcy rates seem to be improving in some metropolitan areas like Charlotte, North Carolina, New York-White Plains, and Atlanta, also indicating that the East Coast may be experiencing an earlier recovery from the recession than the West Coast.

According to the report, California continues to be the state hit hardest with bankruptcy filings, with eight of the top 15 metro areas in terms of bankruptcy filings.

Consumer Financial Protection Agency Moves Forward in House

Posted: November 2nd, 2009, 11:23am PST by Chris Kramer

Last week, the House of Representatives Financial Services Committee voted 39-29 for the creation of a federal agency that would provide consumer protection. The proposed agency (called in bills the Consumer Financial Protection Agency) has been in the news since its proposal earlier this year.

This vote is seen as an important step, but the bill must still face votes before the full House of Representatives and the Senate.

Who Wants It, Who Does Not

For the past few months, lobbyists from both sides of the debate have been pushing legislators to make a decision about the potential consumer protection group.

A Yea from consumer advocates: Generally speaking, supporters of consumer rights favor the agency's creation. If approved, the agency would regulate certain financial products like mortgages, credit cards and loans, and would provide oversight rules for some banks and lenders.
A Nay from big business: Supporters of large businesses and big financial firms oppose the agency, claiming that it would introduce too much government regulation into the business sector, thus hampering trade and profitability.

What The Agency Would and Wouldn't Do

Though many democrats and consumer advocates have reportedly lauded the Financial Services Committee's initial vote, the bill has apparently changed significantly since its introduction by the Obama administration.

Here's a look at what the House has outlined so far for the potential agency:

Limited regulatory reach: While the CFPA would be able to regulate certain lenders and issuers of financial products, the Financial Services Committee's version of the bill exempts many groups, such as lawyers, car dealers, cable companies, retailers, accountants and real estate brokers.
No state overrides: Though the original version of the bill would have allowed stricter state regulations to trump the national rules, this version does not.
Most banks can keep current regulators: Perhaps the most significant change to the bill from its earlier version was one that would allow the vast majority of American banks (about 98 percent, sources estimate) to keep their current regulators for overseeing enforcement of consumer protection laws.

Baby Steps Forward

Though passage of a House committee is only the first step in what may be a long journey, the forward motion of the bill can be viewed as a positive sign for American consumers.

While it's unfortunate that a massive collapse of the real estate industry and stock market was required to incite lawmakers to bolster consumer protections, it's good that they're taking action now.

Additional Resources

H.R.3126 (PDF)

Bankruptcy Median Incomes Change Today

Posted: November 1st, 2009, 7:17am PST by Chris Kramer

Debtors May Have 21 Days to File Under Old Income Levels

The U.S. Trustee Program and Department of Justice announced new bankruptcy median income numbers for the Chapter 7 means test, which affect bankruptcy petitioners who file on or after November 1.

For debtors who income now falls above the new median income, a 21-day grace period may be granted to file under the previous levels. For more information or to begin bankruptcy proceedings to meet the 21-day deadline, connect with a local bankruptcy attorney.

Median Income Tables

One part of the Chapter 7 means test, introduced in the 2005 bankruptcy reform laws, is to compare the income of the debtor with income levels for similar family sizes in the state. In each state (plus Washington, D.C., Puerto Rico and other territories), there is a set median for families of one-to-four people, plus additional levels for families of more than four.

The median income is the middle point of all incomes for each state and family size—half of families will fall above, and half below, the median income. The provision was introduced to help prevent abuse of chapter 7 bankruptcy.

Perhaps a sign of the current recession, with unemployment rising and many workers working below full-time hours, median incomes levels in many cases have fallen. However, income levels have also risen in certain cases. For more information, compare the new median incomes with the previous incomes at the U.S. Trustee web site.

Window to File Bankruptcy Under old Incomes

Under the means test, a debtor compares his income to the median for his state and family size; if his income is below the median, he "passes" that part of the test. Debtors whose incomes are above must look at state exemptions to possibly continue under Chapter 7, or must file under a Chapter 13 debt reorganization plan.

In the rare cases where an income level has lowered (such as a single-earner in Maine, which fell from $40,618 to $38,812) and now excludes a debtor whose income falls in that range, the bankruptcy court allows for a brief 21-day window to "pass" the means test under the previous median income levels.

While most income levels only changed a small amount, for those close to the median, the change could be the difference between a debt discharge under chapter 7 and a 3-to-5 year repayment plan under chapter 13.

For more information on the chapter 7 means test, new median income levels, and if you need to file in the next 3 weeks to qualify for chapter 7 bankruptcy, visit Total Bankruptcy and connect with an attorney about filing bankruptcy.

Stalemate in Real Estate Sector has Increased Bankruptcy Filings

Posted: October 30th, 2009, 12:46pm PDT by Chris Kramer

Guest Author: Peter Gomes

The real estate sector received a jolt when the sub-prime mortgage crisis eroded the US economy. The mortgage market was in doldrums and the upheaval so great that the government had to intervene with its series of mortgage bailout programs.

Consumers bankruptcy filings increased, and so did the number of foreclosures. Many Americans considering bankruptcy filing received more information on bankruptcy by connencting with a bankruptcy attorney.

The Obama Administration introduced a series of mortgage bailout programs to assist homeowners facing foreclosure. The program, known as the Making Home Affordable Plan, was expected to help as many as 7 million to 9 million homeowners. However, due to few limitations, the program has yet to help as many homeowners as anticipated.

There is a vicious cycle of debt that has led to the recession, which has affected consumer spending as well as investor sentiment.

In the easy-credit boom, people started using their credit cards even for making payments for grocery shopping and for utility bills. As employers went on a cost cutting and job cutting spree, it became difficult for consumers to make ends meet.

For consumers considering filing bankruptcy, it can be Chapter 7 bankruptcy or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, a court-appointed trustee will liquidate your non-exempt assets so that the proceeds can help in paying off creditors. As per the new federal bankruptcy laws, certain changes have been introduced. The prominent ones are Means test and credit counseling.

If you are planning to file Chapter 7 bankruptcy, you have to find out if you qualify for the same by taking the Means test. Consumers also must take a credit counseling session prior to filing bankruptcy.

In case of Chapter 13 bankruptcy, you are given a repayment schedule according to which you are expected to make payments to your creditors.

In either bankruptcy chapter, there is one advantage of filing: an Automatic Stay or Order for Relief that prevents creditors from coming after you for their dues.

GMAC May Get Third Bailout

Posted: October 28th, 2009, 10:27am PDT by Chris Kramer

GMAC Financial Services,the former financing arm of General Motors Corp., may be in talks with the U.S. Treasury to receive a third financial lifeline, according to the Wall Street Journal.

GMAC has received $12.5 billion in bailout funds since December, 2008, and could receive an additional $2.8 billion to $5.6 billion in a third injection.

As part of the initial bailout, GMAC, which finances three-fourths of General Motors car loans and provides mortgages, insurance and other services, transformed into a bank holding company, which enabled it to receive Treasury aid. After the May, 2009 bailout, the U.S. government became the majority shareholder in the company.

Because GMAC backs so many new auto loans, it plays a vital role in revitalizing the auto industry, in which the government has already invested $25 billion.

General Motors, which filed bankruptcy this year, began selling off its interest in GMAC in 2006. The automaker maintained a small interest in GMAC before transferring many of its assets to the "new GM" as part is its Chapter 11 filing.

Foreclosure Auctions Finding Few Bidders in Detroit

Posted: October 26th, 2009, 10:49am PDT by Chris Kramer

A recent auction of foreclosed and abandoned properties in and around Detroit, Michigan, saw only one-in-five properties sold—despite an opening bid of only $500.

Almost 9,000 homes and lots were on the auction block at the Wayne County tax auction, according to Reuters, with a total land area almost the size of Boston. At the end of the four-day auction, less than 1,800 properties were sold.

The auction was held by Wayne County to recoup unpaid property taxes, many for homes that had been abandoned or foreclosed.

With unemployment over 27%, Detroit is by far one of the hardest-hit cities in America. Detroit’s population has dwindled from a peak of nearly 2 million in the 1950s to an estimated 800,000 today. Despite efforts by the city to revitalize the downtown, much of the city is turning into a ghost town, according to Reuters.

Beware of ‘Free’ Trial Offers from Online Ads

Posted: October 24th, 2009, 8:16am PDT by Chris Kramer

A recent report from msnbc.com tells the cautionary tale of online shoppers who were intrigued by ads offering “free samples” of a new kind of toothpaste. Many of these people clicked the ad to receive a sample – and instead lost hundreds of dollars.

After entering their credit card numbers for “shipping costs,” victims found that monthly deductions of $58 showed up on their accounts.

Warning Signs & Red Flags

This scam had elements in common with other online scams we’ve written about here before. Generally speaking, any of the following should signal to you that the “free” offer in question is most likely a way to take your money.

Minimal payment upfront. In the case most recently documented (in the article), victims were asked to pay a five dollar shipping charge.
Use of credit card. If an offer requires you to enter your credit card information, close that screen and walk away from the computer. Any truly free offer should not involve payment.
Fine print. Many Internet users skip right over “terms of agreement” texts, often because they’re long and boring-looking. But that section contains important information – and it may reveal the “free” offer to be a costly deal.

The Internet can be difficult to navigate, because nefarious links often appear on otherwise trustworthy sites – in fact, in the msnbc.com story, victims reported just such an occurrence.

So take caution: Just because you trust a site doesn’t mean you can trust the ads that appear on it.

What to Look Out For

Online scams often sound tempting to consumers because they’re designed to appeal to our weaknesses. Products commonly seen as part of online scams include:

Beauty and weight-loss products: Supplements, diet systems and even whitening toothpaste may be presented in “free trial” form.
Work at home offers: Bogus opportunities for self-employment (with guaranteed hefty paychecks) crop up frequently.
Fads and trends: Products or services that allow you to sample a new trend for “free” can be fraudulent, too.

Remember: if something is really worth having, it’s worth paying for. And if you wouldn’t pay for it in the first place, you really don’t want to overpay in hidden costs and “membership fees” that offer you little or no real benefit.

Additional Resources

How to Avoid a Scam (PDF)

Avoiding Online Fraud (PDF)

Consumer Updates: Gas Cards & Book Wars

Posted: October 23rd, 2009, 1:00pm PDT by Chris Kramer

Here are two big stories you should know about this week to stay on top of your personal finances.

Part 1: Citibank Closing Some MasterCard Accounts

Various news outlets have reported on a gasp-worthy move by Citibank in recent days. Apparently, the company has taken to closing various credit card accounts – sometimes for what seem to be pretty arbitrary reasons.

While such action has been almost common during this recession, it seems Citi’s customers have been vexed by the apparently baseless decisions. Ordinarily, card issuers cut off a person’s credit for reasons such as:

Late or missed payments: Failing to get a payment to your card issuer on time could – especially when credit is tight – lead to a lowered credit limit or canceled card.
Negative actions in your credit report: Some card issuers consider missed payments and late fees on any credit product a reason to limit or end your credit.
Inactivity: If you haven’t used your card in ages, it may get canceled.

But, according to stories from the Business Insider, some Citibank customers are seeing their cards cut off with no warning – for no apparent reason.

What You Can Do

Unfortunately, there’s no law in place that prevents credit card companies from ending a customer’s line of credit. But, if you think your card was cut off in error, don’t hesitate to call your issuer’s customer service line. Be prepared to defend your case with specifics about your payment and charging history (you may want to have your last few bills handy).

Your credit score depends partly on age of accounts and credit availability ratio, so it may be in your best interest to keep cards open if possible.

Part 2: New Book Prices Slashed

One of the biggest stories in retail news right now is the price of books. Apparently, major retailers like Walmart, Amazon and Target have been cutting prices for brand-new books by bestselling authors to as low as $8.99!

Take Advantage of It…

If you’re shopping for holiday gifts for readers, now may be the time to stock up on new titles – this could be a short-lived experiment that is not repeated in the future. And, if becomes the norm, the groups who stand to lose are publishers and writers.

…But Stay Realistic

If you’re the main bookworm in your life, though, these prices may not be low enough to justify spending too much new books. Remember that used bookstores often have titles available for serious discounts – and libraries offer thousands of titles for no cost at all!

MoneyGram to Pay $18 Million to Settle FTC Charges

Posted: October 22nd, 2009, 1:02pm PDT by Chris Kramer

The Federal Trade Commission announced this week that MoneyGram International Inc., a leading U.S. money transfer service, will pay $18 million in consumer compensation for what seems to be its compliance with fraudulent money-wiring schemes. This can be seen as a minor victory for consumers.

According to the FTC, MoneyGram was complicit in schemes that cheated people out of money by doing the following:

Alerting them of false winnings or opportunities: Consumers were told (often via mail) that they’d won the lottery, been chosen for a “Secret Shopper” program or been guaranteed a loan.
Prompting them to transfer money: In order to “collect” their money or activate their accounts, customers were required to deposit a check (which had come in the mail with the notification) and wire some of the money to a third party.
Taking the money: In these schemes, the checks that consumers were given to deposit were fraudulent and worthless. The money transferred, then, came from consumers’ own accounts.

More than $84 Million Lost

Consumer complaints indicate that as much as $84 million was lost to such schemes, though the FTC’s site indicates that the actual total is likely higher, since many cheated consumers never file complaints.

The FTC’s charges reportedly include that MoneyGram was aware of the fraudulent activity but did almost nothing to stop it, and that 95 to 96 percent of complaints filed about the company were against 131 of the company’s 1,200-plus agents in from 2006–2008.

In addition to the $18 million in consumer redress funds, MoneyGram has agreed to include anti-fraud and agent-monitoring policies in its future operations. Because part of the charges levied by the FTC include MoneyGram’s active ignoring of reports of agent fraud, new agents will be required to complete background checks before being hired.

What to Watch Out For

In general, the FTC warns that wire transfers can be dangerous, and sets these guidelines:

Never wire money to a person you don’t know, in the U.S. or another country;
Never wire money to someone requesting to keep the transaction a secret;
Don’t wire money to those who claim that money transfers are the only acceptable mode of payment; and
Don’t wire money to someone who asks you to deposit a check and wire a fraction of that amount.

Additional Resources

Money Transfers Can Be Risky Business (PDF)

U.S. Postal Inspection Guide to Avoiding Mail Fraud (PDF)

Catholic Diocese Files Bankruptcy to Stay Abuse Trial

Posted: October 19th, 2009, 11:19pm PDT by Chris Kramer

A bankruptcy filing by the Catholic Diocese of Wilmington, Delaware, may give plaintiffs in a sex abuse trial fair compensation, according to Bishop W. Francis Malooly.

The Chapter 11 filing came late Sunday, after settlement negotiations broke down and just hours before a civil trial was set to begin, according to The Associated Press.

More than 140 individuals have filed suit against the dioceses, its parishes and priests.

The diocese has spent $6.2 million to settle sex abuse cases since 2002, according to the AP. In the bankruptcy petition, the Diocese of Wilmington listed liabilities of $100 million to $500 million related to the lawsuits.

Delaware passed a “look-back” law in 2007, allowing victims previously excluded by the statute of limitations to file suits.

The Wilmington Diocese is the seventh Catholic Diocese to file bankruptcy in recent years, following dioceses in Davenport, Iowa; Portland, Ore.; Fairbanks, Alaska; San Diego, Calif.; Spokane, Wash.; and Tucson, Ariz.

More Seniors Struggling with Debt

Posted: October 17th, 2009, 10:28am PDT by Chris Kramer

A recent Newsweek article highlights the problem of older Americans struggling with debt. It seems that those aged 55 and older have become the group most likely to file for bankruptcy.

Retirement and Debt

The reasons for senior citizens’ financial struggles may not be immediately obvious, but they are telling. Consider these factors that can sap a nest egg:

Credit card debt. This comes as no surprise – many Americans are strapped with serious credit card debt. This is part of the reason why the Credit CARD Act of 2009 was passed.
Large mortgages & home equity loans. Those who refinanced their mortgages during the real estate boom – whether to redecorate, fund children’s education, or pay down other debts – may find themselves faced with massive mortgage payments. In some cases, seniors may owe more on a house than it’s worth.
Cash-strapped kids. Like it or not, you may be contributing to your parents’ financial woes. In many cases, parents try to help their children financially even when they can’t afford to do so. Or they may be too embarrassed to refuse a child’s request for aid.
An end to income. Once you stop working, the paychecks stop flowing in. This isn’t problematic if you’ve got enough money socked away for your golden years, but since the stock market’s crash, many nest eggs aren’t quite as hefty as they once were. And paying down debt without regular paychecks can be difficult.
Predatory lending products. Unfortunately, nobody is immune to financial disasters like payday loans. People on fixed incomes (like many senior citizens) can find such loans especially damaging, since sky-high interest rates make them difficult to repay.

Getting Help for Yourself or a Loved One

The good news is that helpful agencies are available to provide credit counseling or debt management to those in need.

The bad news is that many con artists are also out there, ready to take money from whomever they can.

Check out various credit counseling services in your area (The Association of Independent Consumer Credit Counseling Agencies has a searchable database of accredited firms) and visit the Better Business Bureau’s website to check out any operation you discover.

If you think an older person in your life may need debt assistance but not have access to online resources, consider offering your skills to that person.

Additional Resources

The Plastic Safety Net (PDF)

A Cure for Impulsive Investors?

Posted: October 16th, 2009, 11:27am PDT by Chris Kramer

A recent report from the Associated Press announces the development of a device that could help everyday investors avoid making emotionally driven decisions about their financial moves.

Called the Rationalizer, the device could prompt users to slow down and consider their motives before making hasty purchases or sales.

Background: Irrational Financial Decisions

As mentioned in a previous blog post, researchers have found that levels of testosterone can influence the financial decisions we make.

Traditional wisdom offers a similar diagnosis: greed prompts us to buy too-expensive stocks, while fear prompts us to sell stocks with falling prices, causing some to lose their investments and file bankruptcy.

And even if you aren’t the type to fiddle with your investment portfolio in your spare time, you’ve probably felt the thrill of an impulse buy you never intended to make.

But impulse decisions are rarely wise – and they can prove costly and financially damaging.

Monitor Your Moods with the Rationalizer

Phillips Electronics, producer of the Rationalizer, portrays the product as a sort of cure for impulsive financial decisions. In fact, it’s a little more complicated than that. Here’s how it works, according to reports:

Sweat-sensing bracelet: When you’re making stock trades at your computer, you can wear a bracelet that essentially monitors your levels of perspiration.
Radio-signal communication: The information from the bracelet is then transmitted to a bowl-like structure that glows in a variety of colors.
Color coded identification system: Lights in a bowl vary from yellow (low emotional levels) to orange (moderate levels) to red (high emotions). This lets you know whether or not you’re in a good state of mind to make financial decisions.

Analysis: Controlling Impulsive Decisions

While the device may be useful for those with a history of making emotionally-charged decisions about their finances (or anything, really), it’s probably not a winner for everyone:

Limited portability: For people who have problems with impulse buying in stores, this bracelet would be of little help – the bowl requires a flat surface to be set up. Online shoppers, though, may benefit.
Cost: If your problem is buying gadgets that you don’t need, the Rationalizer may contribute more to the problem than the solution.
Accuracy: No research exists yet to verify the accuracy or effectiveness of this contraption. It may offer insight about your emotional state, but it offers no indication about whether these emotions are positive or negative – and it hasn’t been linked to any success or failure.

The bottom line? The Rationalizer is certainly a cool innovation, but taking a few deep breaths, going for a walk or calling a friend may be better impulse buying deterrents for most people.

Additional Resources

Determinants of Planned and Impulse Buying (PDF)

Credit CARD Act may Get New Effective Date

Posted: October 14th, 2009, 2:04pm PDT by Chris Kramer

The Credit CARD Act of 2009, which establishes new protections for cardholders, was signed into law back in May, but gave credit card companies a full nine months to prepare. Now, the Congress wants to move up the law’s effective date from February 22, 2010 to December 1.

What’s prompting the scheduling change? According to CNNMoney.com, credit card companies haven’t been using the downtime to prepare for their new practices‒they’ve been using it to squeeze as much money out of cardholders as possible, raising APRs, lowering credit limits, and changing account terms.

Each of these tactics will require extra notice, while others will be banned under the Credit CARD Act.

Representative Barney Frank, who co-introduced the legislation to speed up the protection, recently explained the situation to the Associated Press, “It is very clear that this is the kind of protection that shouldn’t wait and we should move forward.”

Combining higher interest rates and lower credit lines is moving the credit crunch from the banks to the consumers, leaving more Americans defaulting on their cards and filing for bankruptcy as a result.

High Unemployment Leading to Higher Job Competition

Posted: October 13th, 2009, 12:32pm PDT by Chris Kramer

With unemployment teetering at 10% and many businesses reluctant to hire, it should come as little surprise that job competition is stiff. A new report by MSNBC shows just how stiff: there are currently 6.3 unemployed workers on average competing for each job opening.

According to the Department of Labor, job competition is up from 1.7 workers per opening in 2007, when the current recession began. DOL has been tracking job competition statistics since 2000.

Employers have cut a total of 7.2 million jobs since December, 2007, and while that rate is slowing, job creation is not expected to recover any time soon.

Many economists predict the unemployment rate to peak at 10% next year and remain at the current level throughout most of 2010, creating a difficult job climate for millions of competing unemployed Americans.

According to a September report by CNN, the federal stimulus has created or saved 1 million jobs, helping to stem the tide of unemployment.

Unemployment is a significant factor for many people filing bankruptcy. Those hardest hit by unemployment may soon find themselves with few other options to fight off mounting debts.

Bankruptcy Filings Could Hit 1.4 Million in 2009

Posted: October 12th, 2009, 9:50am PDT by Chris Kramer

Total bankruptcy filings for 2009 are on track to hit 1.4 million by year’s end, according to recent statistics, with more than 5,900 personal bankruptcy petitions filed each day nationwide.

Between January and September, more than 1.07 million petitions were filed, according to statistics collected by Automated Access to Court Electronic Records, or AACER, a nearly 33% increase over the same period of 2008.

The rate of filings peaked in May, with more than 6,000 individuals filing bankruptcy per day, but has decreased only slightly as the recession wears on.

Bankruptcy Filings Return to ‘Natural Levels’

The continual rise in bankruptcy rates from 2006’s low should be expected, according to University of Illinois College of Law professor Robert Lawless. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) that took effect in 2005 led to an immediate decrease in filings, but only due to the massive increase in the month before it took effect.

Lawless sees it as a “return to the ‘natural level’ of bankruptcy filing rates in this country.”

Current economic conditions have only sped up the process by which people run out of options and turn to bankruptcy protection, Lawless says.

“When people can no longer borrow on their credit cards to stave of the day of reckoning, they end up in bankruptcy court.”

Long Live the Gift Card?

Posted: October 10th, 2009, 12:02pm PDT by Chris Kramer

When gift cards turned plastic, they seemed like the perfect present – convenient, easy to keep track of, and flexible for the recipient. But some gift cards – especially those issued by credit card companies – have been charging fees for card value unused after a certain point.

American Express: No More Dormancy Fees

Whether or not the move is part of a reaction to government attacks of credit and debit card fees is not clear, but American Express has announced that it will no longer charge monthly fees for gift cards that go unused.

On its website, AmEx announces that the elimination of monthly fees began September 30 and applies to all gift cards – those in stores, online and already in people’s wallets. Taken alone, this is good news. But American Express’s move may not cause others in the industry to follow.

Visa cards are more widely accepted among retailers, which means that they may not feel motivated to adopt a similar no-dormancy fee policy.
Chase cards come with a monthly fee of $2.50 beginning a year after the card is issued. The company hasn’t made any announcements about fee changes.
American Express cards still cost between $2.95 and $6.95 to purchase and activate.

Credit Card Reforms and Gift Cards

The recently passed Credit CARD Act, which will bring various credit card reforms early next year, also has some provisions that will regulate gift cards. These include:

Dormancy fee limits: Inactivity for at least one year is required before card issuers can charge dormancy fees to a card.
Fees on packaging: Issuers must “clearly and conspicuously” identify all activation and other fees on the packaging of the card.
Bans on early expiration dates: Gift cards will be prevented from expiring within five years of their issue.

Take Home Lesson: Proceed with Caution

If you’re interested in giving gift cards to your loved ones, consider getting store-specific cards, which generally don’t have activation fees or dormancy fees. Further, you can rest assured knowing it will be accepted at the outlet you have in mind.

Additional Resources

Notice on Prepaid Cards in the Credit CARD Act of 2009 (PDF)

Tax Credit for Hiring Proposed: How Would It Work?

Posted: October 9th, 2009, 10:06am PDT by Chris Kramer

A recent article in the New York Times suggests that various members of Congress and the Obama administration have begun considering a program that would provide tax credits to employers who take on new employees.

A version of the program was apparently most recently implemented in 1977, when unemployment was similarly elevated from an economic recession. The current plan is still in its proposal stages, but here are the basics of how it would work.

Employers would take on new staff members, or extend the hours of current employees. Jobs are often the last part of the economy to pick up after a recession, so the tax credit would initially stimulate hiring.
Employers receive a tax credit for the new hires. While the credit could take a variety of forms, it would essentially mean that employers were relieved in some way of their payroll taxes. Thus, hiring a new person would be less expensive than it would be otherwise.
Businesses bring on workers sooner rather than later. The intended effect of such a measure, naturally, is that employers begin hiring sooner than they would have otherwise, since they would in practice get new workers for a discount.

Some economists apparently think that, timed right, a tax break of this kind could stimulate hiring like few other measures.

The Drawbacks

Naturally, the new-hire tax credit is by no means a guaranteed solution to the problem of unemployment. Among its flaws, some critics point to the following:

Potential employer exploitation: Some employers could take advantage of the “discount employees” they’d get by hiring while the tax credit was effective and firing the employees as soon as the savings ended.
Potential aid for dying companies: Another drawback could be that the credit would end up supporting companies that are in the process of going out of business, are not sustainable, or are at risk of filing bankruptcy; and that the jobs in those businesses would end before very long.

Again, this potential economic stimulant is still in its very early stages, so check this blog for updates as more information becomes available.

FTC Updates Endorsement Regulation Guidelines

Posted: October 8th, 2009, 11:13am PDT by Chris Kramer

On October 5th, the Federal Trade Commission announced an update to guidelines for advertisers who use testimonials. To clarify, no new legislation is involved; the FTC simply updated the suggestions for staying in compliance with the FTC Act.

Last modified in 1980, the guidelines refine the requirements for advertisers using testimonials and endorsements to sell products and services.

What You Need to Know

These changes are significant to consumers because they change what information advertisers are required to present about a product and how they’re required to present it. Here’s a look at what you may notice next time you’re watching TV or flipping through a magazine:

Typical results must be disclosed: You’ve probably seen ads for weight-loss supplements that show people losing enormous amounts of weight using a product – with small text that reads “results not typical.” Under the new guidelines, advertisers are required to explain what typical results may look like, as well, to give a more honest picture of what the product can do.
Material connections must be disclosed: The new guidelines require endorsers to reveal all incentives – cash and otherwise – they receive for pitching a product. This condition has become important since blogging became popular: in some cases, corporations pay seemingly independent bloggers to post positive messages about a product, effectively deceiving readers (morally bankrupt payday loan stores reportedly tried something of the sort not long ago).
Celebrities can take the heat, too: Under the old guidelines, celebrity endorsers ran no risk of being held legally responsible for any of the claims they made during their endorsement – all the culpability went to the company. The revised guidelines, though, place more responsibility on celebs, opening them to liability for the claims they make.
Non-traditional endorsements must be disclosed: The new regulations also require celebrities endorsing or promoting products in non-traditional advertising outlets (during a talk show, for example) to reveal any material connections they have with the company that makes the product in question.

How this Can Help You

Much of what the FTC does is designed to help you, the consumer, sift through the claims and promises made by large companies and advertising firms. While no regulatory body can stay ahead of innovations, it’s nice to know that the FTC continues to protect the people.

If you think you may have been victimized by deceptive or illegal advertising, you may want to fill out a consumer complaint form on the FTC’s web site.

Additional Resources

Text of the FTC’s Federal Register Notice (PDF)

College Football Star Files Bankruptcy, Must Sell Rings, Trophy

Posted: October 7th, 2009, 1:01pm PDT by Chris Kramer

Former Nebraska lineman Aaron Taylor is hoping to regain his NCAA championship rings and other memorabilia he surrendered after filing bankruptcy in an upcoming auction, according to a report by the Omaha World-Herald.

Taylor, who was part of three championship-winning teams in the 1990s, filed bankruptcy in Nebraska’s western district last month, stemming from debt related to a restaurant he and other former NU stars opened in 2006.

As part of his chapter 7 filing, Taylor forfeited his three national championship rings, four district championship rings, and Outland Trophy. His petition listed assets of $5,300 and debts of about $110,000, according to the OWH article.

Because the value of the memorabilia is difficult for the bankruptcy trustee to determine, an auction is scheduled to take place Oct. 31 in Scottsbluff, NE, with proceeds going to pay Taylor’s creditors. Taylor hopes that, with help from his parents and donations from fans, he will be the winning bidder for his college sports memorabilia.

Nebraska bankruptcy laws allow exemptions of up to $2,500 for “any personal property”.

Survey: Shoppers of All Income Levels Cutting Back

Posted: October 6th, 2009, 12:14pm PDT by Chris Kramer

A recent survey conducted by IBM found that Americans are trimming their spending in this recession, no matter how much income they pull in each year. Here’s a look at how people are saving and how to make similar cuts work for you.

Saving Strategies at the Supermarket

Shopping around: 49% of respondents have apparently begun hitting multiple stores to get the best deals on food products. This strategy can be effective, especially if you currently rely on costly convenience stores for the basics. But beware of driving too far for a bargain – your time and gas are valuable, too.
Buying less: More than half (52%) of those surveyed noted that they now buy less at the grocery store. If you choose to follow this strategy, be sure you cut back on expensive items you don’t need and food you end up tossing rather than eating. And don’t buy so little you’ll be hungry all the time – grocery store prices are much lower than those at restaurants and fast-food joints.
Looking for new foods: Among those making $20 thousand or less per year, 45% admitted to turning to foods that kept them full for longer periods of time. This can be doubly effective, since many foods that meet this criterion (such as oatmeal, lentils, rice, beans and potatoes) are generally inexpensive as well.
Trimming luxury brands: A significant number of those surveyed (34%) mentioned opting for less-expensive versions of health care and beauty products, rather than sacrificing them altogether. This can be very effective, especially if you compare ingredient lists to make sure you’re getting exactly what you want before you buy it.

Frugality Beyond the Recession?

Perhaps surprisingly, a majority of respondents indicated that they will be continuing some or all of their money-saving strategies once the recession ends – 60% said they’d keep exploring various grocery stores for bargains.

This is perhaps the wisest move of all.

And, based on a study conducted by AlixPartners earlier this year, the frugal future of Americans may be more than an optimistic hope.

In fact, the group’s study suggested that our country’s spending levels after the recession will be at only 86% of what they were before the stock market collapsed.

That may be bad news for some industries, but those dealing with debt, job loss or filing bankruptcy, every little bit helps.

Additional Resources

Government Consumer Expenditure Survey Booklet (2005 – 2009) (PDF)

Bank of America Trims Overdraft Fees

Posted: October 2nd, 2009, 11:25am PDT by Chris Kramer

In late September, Bank of America announced in a press release that it has modified its policy for charging what it calls overdraft fees, but what some critics classify as abusive overdraft loans.

What are Abusive Overdraft Loans?

In the era of debit card usage, it’s far too easy to spend more money than we have. And most banks allow customers to make transactions even if they don’t have sufficient funds in their accounts – but each such transaction results in a fee.

The so-called fee is, essentially, a super-short term loan: the bank covers your purchase and you repay the amount plus $25 – $35. This may not sound like much, but if you make several over-limit purchases in a day, it can add up.

Bank of America’s New Policy

Earlier this year, BoA introduced fee increases, but apparently changed their plans in light of the negative publicity credit cards have received recently (Credit Cardholders’ Bill of Rights, anyone?).

Here’s a summary of what the new BoA policies will look like beginning October 19th:

For overdrafts totaling less than $10 in a single day, Bank of America will not charge any overdraft fee, as long as the account is settled within five days. (A $35 fee will be levied if the account remains unbalanced after that period.)
The bank will set a limit of four overdraft charges in a single day. (This is a change from the policies introduced earlier, which raised the cap to ten.)
BoA will also modify the opt-out process so consumers can choose not to have “overdraft protection” on their accounts. For the time being, you may have to go to a physical bank location to do this, though the bank is reportedly setting up a phone service.
BoA will outline fees and charges in what it calls “Clarity Commitment” – apparently this will provide a plain-language explanation of their overdraft system.

Protecting Yourself from Abusive Overdraft Loans

If you aren’t sure whether or not your bank offers overdraft protection, be sure to find out. In most cases, opting out of such programs is a good idea. By eliminating the service, you will likely be denied when you try to make a purchase or withdrawal from your account when you have insufficient funds.

For most consumers, the temporary embarrassment is a better bargain than the permanent fees.

Additional Resources

Summary: Credit CARD Act of 2009 (PDF)

Study: Overdraft Protection Programs: The Emerging Battleground for Bankers and Consumer Advocates (PDF)

New Restrictions from the Fed Limit Credit Card Companies

Posted: October 2nd, 2009, 12:22am PDT by Chris Kramer

In a press release September 29th, the Federal Reserve introduced rules for implementing the Credit CARD Act of 2009. Specifically, the rules provide strategies for credit card issuers to follow in order to comply with the terms of the Credit Cardholders’ Bill of Rights, which was enacted earlier this year and takes full effect in 2010.

The rules outline appropriate actions for the following areas.

Proof of Income at Application

Currently, most credit card issuers do not require applicants to provide proof of income when they apply for cards. But the Credit CARD Act calls for proof that applicants will be able to make timely payments, so the Fed’s new rules require potential cardholders to show:

Income from salary, wages, bonuses, part-time work, military work, self-employment, tips, commissions and seasonal/irregular jobs
Income from investment dividends, interest, retirement benefits, public assistance, child support, alimony and other types of maintenance
Savings accounts and/or investments
Credit reports and/or credit scores

These rules address problems in the credit card industry that also manifested themselves in the subprime mortgage lending industry during the real estate boom that peaked in 2007.

Restrictions on Younger Applicants

Because credit card debt for college students has gotten attention as it has increased in recent years (the average 2008 graduate owed $3,173, according to Sallie Mae), the Fed’s proposed regulations address this issue as well.

Specifically, the Federal Reserve’s guidelines indicate that:

Credit card companies cannot lure college students with free items in exchange for filling out an application within 1,000 feet of a college campus.
Card issuers can still offer free items to college students, but they may not make receipt of these items contingent upon filling out an application.
Potential cardholders younger than 21 must provide proof of income or have a cosigner on their application. According to the Fed’s rules, the cosigner can be anyone 21 or older (broadened from the Credit CARD Act’s specification that this person must be a parent or guardian).

When It All Happens

The first changes from the new law took effect on August 20.
On February 22, 2010, most major elements of the law (including regulations on rate hikes and younger applicants) will take effect.
In August 2010, the remainder of the provisions will become effective.

Additional Resources

Federal Reserve’s Proposed Rules for Implementation of the Credit CARD Act of 2009 (PDF)

Sallie Mae Study: How Undergraduate Students Use Credit Cards (PDF)

5 Reasons to File Chapter 13

Posted: September 29th, 2009, 7:59am PDT by Chris Kramer

This guest blog entry was written by David Chang of Chang & Carlin, LLP. Chang & Carlin offer bankruptcy and real estate legal services for Chicago and its suburbs. Read David Chang’s blog at [changandcarlin.blogspot.com]

Many debtors view Chapter 7 bankruptcy as the “better” type of bankruptcy to file, and that Chapter 13 is forced upon them by the courts. However, filing bankruptcy under Chapter 13 has many benefits.

Here are 5 major reasons why people may choose file for Chapter 13 bankruptcy:

Chapter 13 has protections designed to stop a foreclosure or repossession.
Chapter 13 bankruptcy can protect an asset that would otherwise not be protected in Chapter 7, and would be sold to pay creditors.
The debtor makes too much money to file for Chapter 7, and would not be able to file otherwise.
The debtor has recently had debts discharged in a Chapter 7 case and is not eligible to file again.
Chapter 13 can consolidate debts that would not be dischargeable in a typical Chapter 7 bankruptcy case.

More Tips for Outsmarting Marketers (And Keeping Your Money)

Posted: September 28th, 2009, 1:27pm PDT by Chris Kramer

Thank goodness psychologists keep researching human behavior – thanks to their studies, we can know how and why we spend money on stuff we don’t need. Here are some tips (adapted from the book Predictably Irrational) for avoiding classic marketing and behavior traps that may lead to bad financial decisions.

Admit It: You Procrastinate

We all put off chores if at all possible (this is why fast food exists). Rather than assuming your behavior will change anytime soon, plan for procrastination.

Avoid free trials. Most free trials automatically enroll you in a service you have to pay for when the trial ends. You could, of course, cancel the free service at some point – but that takes planning and effort. Either avoid such services or set up a system to remind yourself to cut them off.
Watch out for convenience store prices. Convenience stores are so called because they’re just that – convenient. While it may be tempting to grab a gallon of milk or a few bars of soap while you’re picking up a prescription, resist the urge. You’ll save money by shopping in regular grocery outlets, even if it’s a little more out of the way.

Keep an Open Mind

Rely on your own judgment. If you’ve heard good (or bad) things about a brand or an object, you may be more likely to interpret your experience in that framework. But try to keep an open mind – you may find a less-expensive version of something that suits your needs just fine.
Sift through the lingo. Products touted as premium or professional grade often tempt us because they sound like they’re high quality. But remember that these words have no quantifiable meaning – the way they work is what matters.

Remember: Cost Does Not Equal Quality

There’s a joke that goes, A man will pay two dollars for a one-dollar item he needs. A woman will pay one dollar for a two-dollar item she doesn’t need. While arguably sexist, this illustrates an important point.

Don’t equate price with value: An item is not a bargain if you don’t need it. Similarly, if you must have something, it’s worthwhile to spend money on it.
Know when you’ve erred: Sometimes, we don’t want to admit we spent too much for something. But doing so allows us to see our mistakes and hopefully improve our behavior in the future – and maybe even get a refund.

Make Your Money Work for You

Whether you’re saving up money for a vacation, creating an emergency fund, or learning to stick with a budget after filing bankruptcy, it’s important to make every dollar work for you. By avoid these common pitfalls, you may be able to reach your goals with your budget – and your sanity– intact.

CFED Releases State Financial Report Cards

Posted: September 26th, 2009, 8:11am PDT by Chris Kramer

In late September, the Center for Enterprise Development released data reflecting extensive research on economic conditions in all fifty states. The findings reveal alarming realities about the current financial situation for millions of Americans.

Summary of the Findings

The CFED introduces its findings with the analogy of a house built on sand, claiming that, even when our economy was booming, wealth disparities between the very rich and the poor prevented the country from being truly economically healthy.

The study found, among other things:

Racial disparities: Minority households are more than three times as likely as white households to have a high-cost mortgage, more than twice as likely to be “asset poor” (with insufficient funds to sustain them in crisis), and four times as likely to be unbanked.
Wealth gap: The difference between wealthy and poor Americans is enormous – for every dollar owned by a household in the highest fifth of wealth, families in the lowest fifth own only two cents.
Gender differences: Households headed by females make only 83 cents for every dollar earned by male-headed households.
Revolving debt jump: Since 2007 – 2008, when the last “scorecard” was released by the CFED, median revolving debt has increased by 64 percent, to nearly $3,000.

Policy Suggestions from the Report

With the findings, the CFED also included suggestions for policies to correct or improve the economic disparities. Specifically, the suggestions include:

Earned Income Tax Credits and Individual Development Accounts: These would encourage families to set money aside by giving them tax breaks for putting part of their incomes in savings
Protections from Predatory Lenders: The CFED recommends that more states adopt lending caps for payday lenders and other restrictions on predatory loans.
Financial Literacy Education: To increase general knowledge about and understanding of economic tools and policies, the Center recommends instituting mandatory financial literacy education in public schools.

Learn More

For a detailed look at the findings in your state, you can check out the interactive map on the Center’s website. Get started by clicking on your state and checking out the numbers recorded. You may want to compare your state to others in your region to see how you stack up.

Additional Resources

2009 – 2010 Assets Opportunity Scorecard (PDF)

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Posted: October 8th, 2009, 11:13am PDT by Chris Kramer

Posted: October 7th, 2009, 1:01pm PDT by Chris Kramer

Posted: October 6th, 2009, 12:14pm PDT by Chris Kramer

Posted: October 2nd, 2009, 11:25am PDT by Chris Kramer

Posted: October 2nd, 2009, 12:22am PDT by Chris Kramer

Posted: September 29th, 2009, 7:59am PDT by Chris Kramer

Posted: September 28th, 2009, 1:27pm PDT by Chris Kramer

Posted: September 26th, 2009, 8:11am PDT by Chris Kramer