Credit/Debt Recovery

Fashion spending among women aged 20-29

When I first read about Jane magazine's study that showed women aged 20-29 spend 48.2% of their disposable incomes on accessories, fashion, and beauty, I mentally began drafting a blog post about the frivolousness of fashion, personal responsibility, etc.

Then I actually though about it. 48.2% of their disposable income. That's after the bills are paid. I'd have to look at the finances of one of the women they surveyed, but based on the budget numbers I usually use, we're talking about around 5% of the woman's total income.

Normally we'd set aside 3-5% just for clothing, and another 10% for miscellaneous personal expenses. I think this 48.2% statistic inflates things unnecessarily. What's the real percentage of total income? If I'm right about the disposable income (I'm assuming 10-15% of the total income is disposable), then the women surveyed are operating within recommended budget guidelines.

Of course using the 48.2% of disposable income statistic makes for better ad copy than the percentagee of overall income (whatever that is), but when you look at the way the Jane magazine representative spins it in this story from National Jeweler, it seems they're really just trying to convince jewelers, accessory designers and the like to advertise in their magazine. If Jane readers are really into buying $2,000 watches even if they can't afford it, I suppose that makes it a smart place for jewelers to advertise.

Ultimately, it's your money; you can spend it however you want. Now, if you're digging yourself deeper into debt to have trendy shoes, you might want to examine your priorities. Of course, the credit card delinquency rate is as low as it's been in 10 years, so most of us seem to be making our payments on time. I think it's safe to ignore this "48.2%!" stuff, just like all the other hyperbole you get from the media when it comes to debt.

Budget problems? Start by dumping cable tv

At my house we get just over 200 channels of satellite television, and we have a DVR to record shows we don't want to miss, and we can record two different channels at once.

So how much television are we recording each week? 7 hours. There are only 9 shows we are watching regularly. And I don't think we're that picky. We're paying way too much for very little worthwhile programming. I don't even get my news from the television any more.

So if you're trying to get yourself out of debt and you're having trouble making the budget work, dump your cable or satellite TV. I swear you won't miss it. Any good shows come out on DVD eventually, and you can rent those and watch them at your own pace, commercial-free.

I know this is just a light post, but I'm doing it because I've really turned a corner on this. I now think that, in the event of a budget crisis, cable TV should go before high-speed internet.

Interesting info from NFCC

Everyone is cashing in on the one-year anniversary of BAPCPA to discuss financial literacy and the effects of the bankruptcy law changes. I've pointed out this week that a lot of people aren't admitting how wrong they were about the effects of the new law.

In a comment on an earlier post, I linked to the NFCC's year one report on BACPA. I wanted to point out that the NFCC has found, after half a million counseling and education sessions in the last year, that medical expenses accounted for 2.2% of bankruptcy filings. Not a majority, as the famously discredited Harvard study found, and nowhere near the 40% claimed by some bankruptcy education and counseling providers six months ago. I wonder if they will still try to peddle their false statistics now, contradicting the NFCC, or if they'll quietly pretend they never said it. (Which seems to be what all the "debtors will be denied bankruptcy protection!" folks are doing.)

Here's a pretty good article on the anniversary of BK reform that cites a credit counseling success story and offers some cautionary advice on credit usage.

About the Tithing thing...

As I mentioned yesterday, NACBA and the media suddenly discovered, as the anniversary of bankruptcy reform approached, a new argument against BACPA. It hurts churches.

New York bankruptcy judge Robert E. Littlefield ruled that a couple couldn't tithe 10% to the church because BAPCPA prohibited it. Predictably, the media is suddenly all in favor of tithing. Here's the Washington Times from last month, discussing the case.

Oh, what a terrilble law, says the anti-BAPCPA cabal in the media. Look what it's doing to our evangelical friends!

Thing is, it isn't the law. It's the judge. He made the ruling, saying "the court's hands are tied". No, in fact, they're not. The court has authority to interpret that law as they see appropriate. The sponsors of the bill in Congress have come out and said that this is a misinterpretation of the law.

I think it's possible that the judge in this case is willfully being a dickweed. Wouldn't be the first time. A lot of BK judges are former BK attorneys, and they hate the new law. So even though the judge has the authority to interpret the law in a way that is fair and appropriate, he chooses to take the harshest interpretation and then whine that his hands are tied.

Remember Judge A. Jay Cristol, who waived the counseling requirement for a non-English speaking man who couldn't find a credit counselor who spoke his language? His hands weren't tied. Or how about when the trustees waived the requirements of the new law for hurricane Katrina victims? (Remember, there was a push from anti-BAPCPA activists over Katrina, and the bill sponsors said it was unnecessary to amend BAPCPA because the trustees could waive the requirments for disaster victims without the need to amend the law.) All that suggests Judge Littlefield could have allowed the couple to continue to tithe even in bankruptcy (as many other bankruptcy courts have done in similar cases). But instead he forbade it, and blamed the law, calling it an "awkward, bifurcated congressional framework that which makes charitable giving easier for some debtors and not others. Whether tithing is or is not reasonable for a debtor in bankruptcy is for Washington to decide." No, Judge Littlefield, it was for you to decide. And you decided not to do your job, instead throwing a pair of bankruptcy petitioners under the bus to score cheap political points against a law you obviously don't like.

At any rate, Congress has responded and there will soon be a law clarifying that charitible contributions aren't prohibited under BAPCPA. This phony manufactured crisis will be over, and the media can go back to not caring about how much anyone gives to the church.

(Incidentally, notice how the bill sponsored by Hatch and Obama passed the Senate two weeks before Liz Pulliam Weston's article mentioned the "charitable contribution mess"? Do you suppose she didn't know that Congress had already begun to clear up this willful misinterpretation of the law, or is it possible that she chose to ignore it when writing her anti-BAPCPA hit piece? I mean, the fact that this judge got it wrong and Congress is already acting to correct his mistake is useful information when you're accusing the law of "prioritizing credit card companies ahead of the duties of one's faith," isn't it, Liz?)

1st Anniversary of bankruptcy reform

A year ago today, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect. Predictably, the media is in full-on anniversary attack mode.

The terrible Liz-Pulliam Weston piece I blogged about on Saturday is part of that movement. And in it she mentions my favorite new anti-BAPCPA rallying cry "it hurts churches!" Yes, suddenly America's mainstream media and attorneys are deeply concerned about our churches. Someone in New York couldn't give money to their church under the new bankruptcy laws! For shame! Won't someone please think of the evangelicals?

I'm not picking on the religious, I'm just incredulous that so many newspaper reporters are suddenly interested in tithing.

Yes, on the anniversary of bk reform, this is about as fair and balanced as you're going to see. I mean that. Finally an MSM report about this subject echoes what I've been trying to say for so long. After letting a BK attorney whine about having to lay off staff members, Helen Huntley writes:

To some extent, bankruptcy lawyers are victims of their own advertising. A year ago, Debt Relief Legal Center's Web site warned "once the new laws become effective, your rights and benefits upon filing bankruptcy may be dramatically reduced or you may not be entitled to file at all."

This is what I was talking about on Saturday. As far as I remember, only I (and maybe Todd Zywicki) was saying that the new law wouldn't prevent many people from getting bankruptcy relief. But that wasn't what everyone else was saying:

The most talked-about was a new requirement that people with above-average incomes make payments on their debts over five years if the court determines they can afford it.

Anyone above the state median income ($62,269 for a family of four in Florida) must go through an analysis of their expenses. The results determine whether they are allowed to liquidate their debts in a Chapter 7 filing or must go through a Chapter 13 repayment plan.

While this requirement got a lot of press, only about 10 percent of bankruptcy filers make more than the median income, and half those have no money left over to make debt payments.

I think this is the first time I've seen anyone put all this together outside of this blog. The BK Lawyers who opposed reform started the feeding frenzy in 2005 and now they're paying the price for being over-zealous. Of course they have willing stooges in the media repeating that it's BAPCPA's fault and not their own, but the truth is, BAPCPA opponents and their accomplices in the media tricked the country into ignoring people like me and rushing to file bankruptcy before the boogeyman showed up. Now it's clear that BAPCPA doesn't prevent people from getting BK protection, but no one's called me up to tell me I was right. Just the opposite. The same people who said everyone would be diverted to Chapter 13 are now saying, "see, we told you so". No. I told you so.

My friends at Springboard have their own anniversary take on BK reform; it's all about education. (Hey, another thing I've been screaming since this whole thing began.) In their experience, the pre-petition counseling has helped consumers (as opposed to Liz Pulliam Weston's conclusion that it's a waste of time and money for everyone involved).

Consider this quote from Dianne Wilkman: "We believe strongly that consumers need to make an informed decision about filing for bankruptcy." Can anyone honestly dispute the merits of that statement? Can anyone honestly say that's not a good idea? Of course not. Now, someone might quibble with who's doing the informing, but look at the numbers. Credit counselors have not diverted bankruptcy clients to debt management plans. They have ushered every consumer who has come to them to the proper destination for relief. 99% of the time, that's bankruptcy. I think the credit counseling industry has proven itself here; they're honest, and they can be relied upon to help consumers make informed choices about bankruptcy. And along the way, they'll construct a personalized spending plan for every bankruptcy applicant and educate them about money management and personal finance. Does that sound like a "waste of time" to you? If so, you might consider a career in journalism.

CNN almost gets it right

Hey, an honest headline from CNN: Bankruptcy law not as bad as predicted.

Remember the crap article by Liz Pulliam Weston I linked to on Saturday? Where she said "Bankruptcy experts told us... that fewer than 5% of filers have the ability to repay any of their debts"? And I called B U L L S H I T on that, and pointed out that no, I said that, BK experts said the kind of thing Travis Plunkett is quoted as saying in the linked CNN article:

The new bankruptcy law will keep many Americans who need a fresh financial start in bankruptcy from receiving it.

And now, according to the article, "Plunkett and bankruptcy experts say it's too early to assess with certainty the full effects of the new law." I agree that it's too early to say what the filing rate will be, since so many people filed late last year. But it's not too late to say that Plunkett and bankruptcy experts like him were wrong about BK reform. Just like Liz Pulliam Weston is wrong now.

I never argued BAPCPA wouldn't make declaring bankruptcy more costly; of course BK attorneys were going to double their fees when the new law increased their workload by 50%. When I said BAPCPA wouldn't make it harder to file a chapter 7, I meant just what we've seen--the means test is only steering 5% of filers toward a chapter 13. (The CNN article says eventually "filing for Chapter 7 may become harder" and that "there are some very preliminary indications that more filers are being pushed into Chapter 13." Here we are, a year since the reform went into effect, and we're seeing some very preliminary indications! The media just doesn't know when to quit.)

Let me re-iterate what I've said over and over again; I supported BAPCPA because financial counseling and education for bankruptcy filers were good ideas. And I knew that neither the means test nor the credit counseling industry were going to divert anyone who truly needed bankruptcy from getting it. I'm not qualified to speak to the paperwork aspects (i.e., the increased workload for bankruptcy attorneys), and I certainly don't think the creditors of the world deserve more help from the government (see the last 6 paragraphs of the CNN article). Yes, bk is more expensive. But the average amount discharged in bankruptcy is around $41,000. It sucks that bankrupt people have to come up with an extra $1,000 or so to pay their attorney and filing fees, but that's still $40k they're not going to have repay. A good credit counselor can help them come up with budgeting and saving strategies to come up with that extra $1,000. Good for them, then, that the new law requires them to see a credit counselor first.

Liz Pulliam-Weston gets it wrong

Liz Pulliam Weston's most recent column is a hit piece against bankruptcy reform, and it's full of the same tired "logic" as every other anti-bankruptcy reform article we've seen over the past year and a half.

Weston is usually better than this, but here she gets sloppy as she succumbs to the desire to spout the politically popular opinion. I guess I can't say I blame her; supporting BAPCPA, however tentatively, has done me a lot more harm than good. I probably could have gotten a lot more interviews (read: opportunities to plug my book) if I'd gone along with the in crowd and decried bankruptcy reform as a menace.

I'm not going to fisk this thing line by line, but it is interesting to note that once again, the BK lawyers of the world get a pass. Oh no, they didn't cause a bankruptcy frenzy in 2005 when they misled us about the effects of the new bankruptcy law; the law itself did that.

I have to tell you something about myself right here. One of my biggest pet peeves is what I call parahistory. Imbeciles who claim Shakespeare didn't write his plays, say the holocaust never happened, or minimize Soviet atrocities are particularly dangerous, imo. I have no truck with people who will turn to that sort of intellectual dishonesty and lie about history.

So when Liz Weston says "Credit counselors report what bankruptcy experts told us they would, which is that fewer than 5% of filers have the ability to repay any of their debts," it rankles me a little. I said that, until I was blue in the face, but everyone else said the law would force bankruptcy filers into involuntary servitude to repay their debts. The battle cry of the BK world wasn't "BK reform won't prevent anyone from declaring bankruptcy." I said that. Everyone else said just the opposite.

The massive crush of people trying to file BK in 2005 before the law went into effect wasn't because "BK experts" told them that 95% of them would go straight to bankruptcy. No, those people were convinced that if they waited until Oct. 17th, they wouldn't get to file bankruptcy at all. Who convinced them of that?

And of course, her comment about "frog-marching" consumers to credit counseling that does "little good" and is a "waste of time and money for all concerned" doesn't sit well with me. I think she knows better. After all, she was the frackin' keynote speaker at the NFCC national conference last month. Why speak to the credit counseling industry Liz, if it's such a waste of time? With friends like these, who needs NACBA?

Fair Isaac sues credit bureaus

Fair Isaac, of FICO fame, is suing Transunion, Equifax, and Experian for violating antitrust laws.

They are arguing that the new VantageScores offered by the three credit bureaus in tandem constitute unfair competitive practices.

I'm not sure how I feel about this yet. Usually, in any dispute between Fair Isaac and the bureaus, I side with Fair Isaac. But it could easily be argued that before VantageScores came along, Fair Isaac had an "unfair" monopoly with FICO scores. Of course, if Fair Isaac is right, the bureaus are engaging in predatory pricing, and they're going to lose this lawsuit. We'll see.

Here's the press release from Fair Isaac.

FDCPA enforcement news

The FDCPA, or Fair Debt Collection Practices Act, strictly regulates debt collectors when it comes to communicating with debtors. I think I've written before that the FDCPA is an onerous piece of legislation, but that the debt collectors of the world got what was coming to them. Even now, almost 30 years after the FDCPA was first passed into law, I still hear of collectors regularly violating its provisions.

Now, this story indicates that collection letters saying debtors "could" be sued if they don't pay their debts may be found to violate the FDCPA.

So if this case continues to not go the right way for America's bottom-feeding scumbags debt-collections law firms, they could find themselves in some big trouble. Couldn't happen to a nicer bunch of guys.

Springboard & AMC helping consumers

Here's a press release from Springboard and AMC Mortgage Services discussing a year-long pilot program to help consumers.

Together they've contacted consumers and taught them how to look for and correct errors on their credit reports. They found that 96% of their participants had innacurate or outdated information on their reports. That may seem like a shockingly high figure, but it's in line with what PIRG found: 89% of credit reports had errors, and 25% had errors serious enough to keep the consumer from getting a mortgage, auto loan, or other service.

With Springboard & AMC, the consumers got help, in the form of education, that taught them to fix the errors and modify their behavior to improve their credit records. It's working so far, and it just reinforces my belief that the recently passed H.R. 4 (which prohibits credit counselors from assisting consumers with credit correction) was a terribly misguided piece of legislation.