Credit/Debt Recovery

One in four workers are financially distressed

According to this press release from the National Council on Family Relations, one in four American workers--30 million people-- are seriously financially distressed.

Among the other conclusions in the report:

•The financially distressed are often living paycheck-to-paycheck
•Poor health and financial stress are related
•Personal financial problems hurt workers' productivity
•Financial problems are not confined to lower income levels

They've come up with some recommendations for the financially distressed:

•Spend less than you earn
•Make and implement plans to prevent poor money management and reduce financial distress
•Determine the best options to relieve financial distress
•Get help through the workplace

It's compelling stuff, but we knew a lot of this. The biggest bombshell is the 30 million figure, which appears pretty well backed up by the study.

I think the last point is worth highlighting; not enough people take advantage of the Employee Assistance Programs that are offered to them. If you're feeling financial pressure, talk to your employer about programs they may have that can help. I used to do personal financial management seminars for Ann Clark & Associates, the biggest EAP provider there is. That kind of service (if taken advantage of and taken seriously) can be better than a pay raise. Many workers I spoke to groused (because they'd complained to their employer about money hoping for a raise, and instead got a seminar) but what good is an extra buck an hour if you're just going to continue bad spending habits? And as the aforementioned report says, money problems affect people of all income levels. So for most of us, that little raise isn't necessarily going to make the difference.

Robert Manning on C-SPAN

Robert Manning appeared on C-SPAN last week to attack the bankruptcy bill. Manning is the author of Credit Card Nation, a book I've been recommending for a long time. Head to this link and click the first entry on the page to watch a Realplayer stream of the interview.

Everything Manning says on there seems to be true... but once again, here we have an opponent of BK Reform whose chief argument is that this bill is bad because it helps credit card companies, who are evil. It's easy to make a persuasive case (and Manning does) that credit card companies:
Buy a lot of politicians (of both parties)
Have very successful business model right now, thus proving they don't NEED the benefits they'll get from this law
Are unspeakably evil
Are so greedy it's hard to put into words
Market credit cards to people who don't need them
...And so on for 45 minutes.

Yeah, yeah, yeah. Tom Blumer made a better case at Bizzyblog.

I like Manning, but he's showing some signs of slipping; I've heard rumors he's hooked up with some shady debt-settlement operators. I hope that isn't true. His book's good, though, and a great argument for cutting up your credit cards.

I want to get back to a world where credit isn't a civil right; it's not something you're born entitled to. A lot of people are simply better off without it, in fact. But it's too late, these days not only are people entitled to credit, they feel entitled to a fair and equitable credit workout. This bankruptcy bill's "fairness" is still under debate, but I predict a strong consumer movement to demand fair and equitable workouts as a right; and I'm talking about something short of bankruptcy. Guys like Dr. Manning will be leading that charge.

Banks raising minimum payments

Last month, Both Bank of America and MBNA raised their minimum required payments on credit card balances. Here's an article at Forbes.com about the change.

Now, it seems Chase is doing the same thing, according to this reuters article.

What's going on? The Forbes article is right to say the decision was "made with a minimum of fanfare."

We've been criticizing creditors for years for setting minimum payments so low. Many people who pay 2% on their balances will remain in debt for decades. This move, raising minimums, will actually help consumers by making them pay off their debts faster and with less interest over the life of the loan.

Except, in the short term, this move will hurt. Some people who are overextended will find that doubling their payment from 2 to 4 percent will push them over the edge. All of the major banks are bracing for an increase in charge-offs as they demand higher payments from their debtors.

But I can't find anywhere where it actually says the minimum is going up to 4%. It seems that the creditors are setting minimums differently depending on your balance and interest rate (like BofA's minimum=interest, fees, and $10 of the principle.)

Some people are still criticizing the creditors, even though they're doing the thing we've been urging them to do for years.

I don't think this will cause a crushing wave of charge-offs, but certainly a number of consumers out there will be squeezed by these policy changes. Some are urging people to file BK now, before the reform law is passed (even if it's signed right away, it won't go into effect until October, I think).

Consider this: an increase in minimum credit card payments makes it easier to declare bankruptcy under the new law.

But I don't think this increase in minimum payments is directly connected to bankruptcy reform in any way; it's just coincidental timing.

Identity Theft News

Someone emailed me about this great blog entry about identity theft. Reminds me somewhat of some of my own experiences with identity theft.

Plus, I read this weekend in the Kansas City Star about identity theft insurance. The basic conclusion of the Star's Moneywise correspondent was the same as my own: identity theft insurance isn't worth it.

The crime continues to rise, continues to be terribly easy to get away with, and law enforcement agencies continue to do almost nothing about it.

One of the reasons law enforcement doesn't bother is the same reason id theft insurance is worthless: id theft doesn't usally cost you real money. It costs you lots of time (LOTS of time) and aggravation, and maybe a few bucks. But insurance companies aren't in the business of compensating you for your time and anguish. ID theft insurance policies may not be a total rip-off, but they're not worth the price.

Thanks Topher for the heads up.

Tom Blumer Strikes Back

Tom Blumer of Bizzyblog.com posted here the other day in response to my post about Todd Zywicki's article in the NRO.

Tom's very sharp in his analysis, and has emerged as an astute opponent of the bill. His commentary, even the stuff I disagree with, is well-reasoned and not wacky NYTimes editorial page fodder. At Tom's invitation, I've gone over his posts in response to Zywicki, and have found a lot to agree with.

Let me post another link to his Talking Points. He put the link in his comment the other day, but I really think interested readers should pay his blog a visit, so I want to put it up again here on the main page.

I should say something up front: yeah, I'm for bankruptcy reform, but not that enthusiastically. Honestly, I'm defending it mostly because no one else seems to be, other than Zywicki. There are people everywhere attacking this legislation, including a half-dozen excellent blogs that are just teeing off on this thing daily. And nary a peep from the other side. So, while I have some reservations about the reform, I figured I'd step in and try to balance the scales a bit.

That said, one of Tom's first points, that the homestead exemptions make the bill unfair, is really right on. There's only so much bankruptcy reform that can be done at the national level. The states have to get into the act and revise their own homestead exemptions if bankrutpcy is ever going to be fair.

A lot of what I'm seeing at Bizzyblog is, as I say, reasonable. I might quibble with bits and pieces here and there, and certainly Todd Zywicki would find even more to disagree with, but I think the bankruptcy reform bill may be the best we can do, given our system. I'd like to see creditor behavior addressed, and I hope all of this frustration over BK reform will lead to some real movement on that front. I'm all for it. That's something I like about the blogosphere: we're not about getting on one side of a left-right divide and staying there no matter what(except for dailyKos, perhaps). We all work together when we agree, we debate when we disagree. I've seen a lot of left-leaning blogs favorably cite conserviatives who oppose bankruptcy reform; it's nice to see that kind of thing. So if the next movement in blogs is to hold creditors feet to the fire (as in "you got your BK reform, so make with the rate reductions") count me in.

As for Chapter 13 bankruptcy, I'll be honest; I've never recommended it to a consumer. In my book, I advise people to skip it and go straight to chapter seven. I've seen shady BK attorneys usher people into "chapter 20" filings, where a 13 is destined to fail, and the lawyer is there to collect a second fee to help the consumer into a chapter 7 they should have filed in the first place.

My support for the bill rests almost entirely on the consumer education and counseling requirements, which are a great idea. Even Tom agrees with this, except he feels the new law sends people to counseling too late to do them any good. It's true that even today, a lot of people show up at a CCCS office too late, and the counselor has to advise them to see a bankruptcy attorney.

It's a sad affair when people go bankrupt. It's clear that the lending world has no sympathy for people who have been stretched to the absolute limit and must admit that they have nothing left. But hatred for those evil creditors keeps clouding this issue. I know those bankruptcy filers out there can get real help if they see a reputable credit counselor in time. I'm thinking of them when I offer support to this bill. Yeah, this bill could be better. But these days I can't name a single solitary thing the government does really well. So why should we expect this law to be perfect?

Credit Card Prank

Still buried with work, so I'll just post this fun link to Zug.com's credit card prank, which I found on Fark.com.

These days, the credit card companies don't care what the signature looks like on a credit card receipt--I know big retailers who've been told by the credit card companies that they don't have to bother comparing signatures to the back of the card any more. And if it's under a certain amount ($25 I think) no signature is required at all.

I suppose this is good in terms of convenience, but potentially bad in terms of identity theft. Eventually we'll all have implanted microchips or something, and this will be a non-issue.

Slow posting

Sorry for this drought in posting... I'm buried under day-job deadlines, so I won't be making huge posts for the next couple of days. When this project is finished, I'll be back in full force with my promised series on Junk Debt Buyers.

In the meantime, check out the comments on my last post; Tom Blumer of BizzyBlog paid me a visit and left some great comments. I'm afraid I won't have time to formally digest them and respond until later this week. I'm grateful to Dianne for posting her great response as well.

Zywicki at National Review Online

On Tuesday, Todd Zywicki has an article in the National Review Online that is a must read.

He says as many as 7-11 percent of filers may be affected by the new bankruptcy law, so I'll have to adjust my thinking on that (I've never heard anyone else say that more than 5% would be affected). He also discusses the myriad ways bankruptcy filers can avoid being affected by means-testing:

In determining whether the debtor can repay a substantial portion of his debts, the legislation makes allowances for a whole range of expenses right off the top. First, it creates a standardized slate of expenses based on the relevant family size and regional cost of living, for such things as clothing, food, transportation, etc., eliminating the subjective judicial navel-gazing of the current system. It then subtracts from your income all of the debtor’s actual payments on secured debts, such as a home mortgage, car loan, or the like. The debtor can subtract any actual expenses for health care for himself or a dependent, as well as payments for health insurance premiums. Finally, there is an allowance for children’s educational expenses. If after subtracting out all of these expenses, the debtor still can repay $10,000 or 25 percent of his debts over a 5-year period, then he would be presumed to have to file in chapter 13.

The debtor could rebut this presumption by showing “special circumstances” that make it too much of a hardship to file in chapter 13, in which case the debtor would still be permitted to liquidate his debts in chapter 7.

Now I just need to find (or write) a clear, comprehensive description of chapter 13 so people will see that 13 does offer relief to an overburdened consumer, and isn't some kind of horrible punishment imposed by evil creditors. I'm seeing a lot of misinformation being spread about bankruptcy in the name of defeating this reform.

People who want to see the creditors held to account for their predatory practices need to get busy agitating for that kind of legislation; I'm sick of hearing that creditors should have to endure unlimited bankruptcy filings because they deserve it. Creditors don't pay for bankruptcy; we do. All of us. Creditors deserve a lot worse than the current system provides for, and we deserve a lot better.

BK Bill done by Tax Day?

The House committee approved the bankruptcy bill as submitted by the senate yesterday, clearing the way for floor debate beginning April 4 with a vote soon after. Some are saying the bill will be ready for President Bush to sign by April 15th.

Debate rages on in the blogosphere, with a coalition of blogs working to persuade House supporters of the bill to bail on it. I'm assuming nothing at this point, as this bill has passed before and always found a way to not become law.

I want to direct everyone to Jane Galt's excellent post on the bankruptcy reform issue. She's the only other person in the blogosphere I can find who is close to my own position on this, though in the end I suppose she'd vote "nay" on the bill and I'd vote "yay." (It's a fine line, isn't it?)

But especially important information here is about the whole "medical bankruptcy" story. We're starting to see how Elizabeth Warren plays fast and loose with the numbers, and here Jane Galt calls her on it. No, 54% of bankruptcies aren't the result of medical conditions, unless you consider alcoholism, gambling addiction, and drug habits "medical conditions." And even then, many of those bk filers had some medical debt when they filed, but wouldn't say that the bankruptcy was a direct result of those medical expenses.

The other thing is, we do have a big problem in this country with regard to the stability of the middle class. Is bankruptcy the best solution to that problem? Come on. Better financial education in schools is the answer to that problem. Let's talk about that.

What I keep coming back to is: this is an awful lot of fuss when most of us won't even notice anything's changed. Most of the people who declare bankruptcy won't notice anything's changed. It's really a very small number of people who will be directly affected by this bill. I respect when someone like Dave Ramsey comes out against the bill, but when he asserts that this bill adds a billion dollars to Capitol One's bottom line, where is he getting that figure? I don't believe for a minute that any creditor will directly benefit that much.

Debate still rages on

I hope everyone saw the excellent comment placed by Tracy from Cazel Family Law Services, responding to Joseph Pomykala's essay defending bankruptcy reform.

The debate is still going on over this issue, and there are a lot of sharp people engaged in it. I think it's a mistake to try to take on someone like Todd Zywicki with statistics and economic theory--the guy's too sharp for that. But reasoned commentary from the real world, not the theoretical one, that's the best way to be persuasive. I've seen other bloggers try to challenge Zywicki on the numbers and get schooled. The smart thing to do is to take the debate somewhere else, where we're talking about real people and not statistical trends.

For my part, I'm fascinated to follow it all, but I don't possess enough hubris to think I could jump into this ring and not get clobbered. Anyone who has read my book knows that I pretty much skipped bankruptcy; my advice was to find a good attorney if that was what you needed, and if you really wanted to read a book about bankruptcy, there are plenty out there written by people better versed on the subject.