Easy way to reform bankruptcy and stimulate the economy

by Sundeep Kothari

Atlanta Bankruptcy Georgia Attorney

There is an easy way to reform the bankruptcy framework and help to stimulate the economy: eliminate the means test.

Prior to 2005, income level was not a factor in determining whether someone could file for Chapter 7 bankruptcy protection. In Chapter 7, someone can wipe out most or all of their unsecured debt, and come out of bankruptcy with only certain secured and unsecured priority debts. This allowed homeowners to have more income to pay off their mortgages.

In 2005, the bankruptcy framework was changed by the inclusion of the means test. This test determines whether someone is eligible to file for Chapter 7 protection based upon their income or their household income over the previous six months. If someone’s income is too high, then they cannot file for Chapter 7, and instead have to file for Chapter 13 protection. Chapter 13 requires, in most cases, that a portion of unsecured debt be paid off over a 3 to 5 year period of time.

What has happened is that some debtors have spent money on their credit card debt, which has driven money away from paying for home mortgages. Credit card companies stated that they would have more money under the 2005 bankruptcy law and could reduce interest and payments for most credit card users. This, however, has not happened, and in some instances, credit card companies have unilaterally raised consumer credit card interest rates without strong factors.

As home foreclosures are a major source of the economic distress facing the U.S. today, eliminating the means test will allow more income to be used to pay home mortgages, keeping more people in their homes and stabilizing the housing market.

Credit card companies watch you like a hawk

by Sundeep Kothari

Atlanta Bankruptcy Attorney

Credit Card companies watching closely

Interesting article about how credit card companies monitor your purchases.

Freddie Mac letting foreclosed homeowners stay as renters

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

Freddie Mac letting old homeowners stay as renters

Freddie Mac has started a program allowing homeowners who have lost their home to foreclosure to stay on as renters.

Freddie Mac gets a tenant to stay in the home and prevent the property from going into disrepair. In addition, Freddie gets someone to help at least a portion of what would be the normal mortgage payment. Something is better than nothing.

The old homeowner gets to live in the same home, and not have to move.

I could imagine a lot of banks may do this in the future to help increase revenues and reduce the number of homes on the market, when now there is a huge glut

Rep Conyers discusses the Helping Families Save Their Homes In Bankruptcy Act of 2009

by Sundeep Kothari

Atlanta Georgia Bankruptcy Firm

Loan modification can stop foreclosure crisis

Representative John Conyers discusses the Helping Families bill, which is aimed at reducing foreclosures:

“Some argue that we are acting too quickly, and that we should delay my legislation to give homeowners and lenders more time to modify the terms of existing mortgages on a voluntary basis outside of bankruptcy.

But the evidence shows that such modifications don’t work. For one thing, many of the servicers who control the mortgage loans claim they are not legally permitted to agree to voluntary modifications. And even when they are legally permitted to agree, their financial incentives are stacked in the direction of foreclosure.

As a result, the much-vaunted federal “Hope for Homeowners” program launched in October has been only a limited success. The program is supposed to facilitate new mortgages for homeowners if lenders agree to reduce the amount of money owed on a home to 90% of its assessed value. The program went into effect with the goal of helping hundreds of thousands of homeowners. To date, it has processed less than 400 applications.

To those who claim that my bill will end up harming consumers by increasing the cost of credit, I would respectfully suggest that they are not taking account of the track record of the modern-day bankruptcy code.

For more than three decades, the bankruptcy code has permitted the very kind of court modification we are considering today, for every other form of secured debt, including loans secured by second homes, investment properties, luxury yachts, and jets. For over 20 years, this very kind of modification has been available for home mortgages already — if the home is a family farm. There is no indication that this has in any way increased the cost of credit for any of these kinds of loans.”

Argument against primary mortgage modification power in bankruptcy court

by Sundeep Kothari

Atlanta, Georgia Bankruptcy Attorney

Argument against primary mortgage cramdowns

This article argues against allowing bankruptcy judges to cramdown, or modify, primary home mortgages. The article asserts that taxpayers will end up bearing the costs for the losses from these mortgages, and that these cramdowns don’t work anyway (since most people in bankruptcy repayment programs fail anyway).

I don’t agree with the arguments in this article, but I am posting it for discussion and food for thought.

Sen. McConnell calls for mortgage reform and 4% mortgage interest rates

by Sundeep Kothari

Atlanta Georgia Bankruptcy

McConnell calls for mortgage reform

Senator Mitch McConnell states his opposition to President Obama’s stimulus package, calling for mortgage reform with a plan that calls for 4% interest rates on mortgages.

There are a number of issues to contend with regarding this plan. One is whether McConnell has sufficient support in his caucus to get them on board to support it. The second is whether he can convince Democrats to get on board to support it. If he doesn’t have either, then his plan is simply obstruction to Obama’s stimulus package and will go nowhere.

A good question to ask is why he has proposed this so late, instead of right after President Obama was inaugurated. That doesn’t bode well for the type of support McConnell will get for his package.

Bankruptcy fears grip auto-parts suppliers

by Sundeep Kothari

Atlanta Georgia Bankruptcy Lawyer

Possible bankruptcy by auto-parts suppliers

Auto-parts makers are considering whether to file for bankruptcy protection. As car sales go down, and the fear of the Big 3 automakers going into bankruptcy themselves, less cars are being produced, which means less auto-parts are needed, which means less revenue for auto-parts makers, which means more layoffs for workers.

The downward spiral continues.

Pelosi, Hoyer support bankruptcy reform

by Sundeep Kothari

Atlanta Bankruptcy Attorney

Pelosi, Hoyer support bankruptcy reform

House Speaker Nancy Pelosi and House Majority Leader Steny Hoyer break from President Obama and support an immediate change to bankruptcy laws to help homeowners and consumers.

Both Pelosi and Hoyer state they see an immediate need to allow bankruptcy judges the power to modify primary home mortgages to prevent foreclosures and keep homeowners in their homes.

Pelosi and Hoyer, however, do disagree on whether the bankruptcy reform measures should be part of the initial stimulus package or stand alone. Pelosi favors the first, while Hoyer favors bankruptcy reform as a stand alone measure.

Helpful to the cause are Blue Dog, conservative Democrats Brad Miller and Jim Marshall supporting the reform, complaining that banks have done very little to help homeowners during the foreclosure crisis.

Hopefully Speaker Pelosi and Majority Leader Hoyer will use the bully pulpit to push this reform, and then make this reform a reality.

Obama resists inclusion of cramdown powers for bankruptcy judges to stop home foreclosures

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

Obama resists cramdown powers

Obama is resistant to include in his stimulus bill a provision to allow bankruptcy judges to cramdown primary mortgages for homeowners to reflect their current value. The example is this: someone buys a house worth $300,000, and the mortgage is $300,000. With the meltdown happening, that house is worth $200,000 now. So the homeowner has the option of 1) surrendering the house and filing for bankruptcy; or 2) keeping the house. For the first, the person has to surrender their home through no fault of their own or maintain payments on a property that isn’t worth it. For the second, the person continues to make payments on a property and hopes that one day the property will rise in value.

So the homeowner is in a bind. And the bank is in a bind – if they keep losing good paying homeowners, they are stuck with properties and have to find new owners.

So the cramdown power allows bankruptcy judges to re-write contracts, so banks keep homeowners in their properties and homeowners have an incentive to stay there.

Obama is reluctant to push this provision through for fear of losing Republican votes for his stimulus bill, and maybe some Democratic votes as well.

Meanwhile, homeowners who bought their home in good faith and are paying in good faith are not helped by a stimulus bill of $700-800 billion.

A huge, huge first mistake by Obama.

Charter Communications considers bankruptcy filing

by Sundeep Kothari

Atlanta, GA Bankruptcy Attorney

Charter considers bankruptcy

Cable television giant Charter Communications has retained counsel to consider bankruptcy filing. Charter, owned by Microsoft founder Paul Allen, has lost money for the last 10 years.

Circuit City’s official statement on company liquidation in U.S.

by Sundeep Kothari

Atlanta Bankruptcy Attorney

Circuit City’s official statement on company liquidation in the U.S.

Here is the official statement by Circuit City concerning its liquidation of operations in the U.S.

Equal Sweetener Parent Co. Merisant Files for Chapter 11 Bankruptcy

by Sundeep Kothari

Atlanta Bankruptcy Attorney

Merisant files for Chapter 11 protection

Merisant Worldwide Inc., maker of Equal Sweetener, files for Chapter 11 Bankruptcy.

Chapter 11 bankruptcy generally is a reorganization plan for businesses, whereas Chapter 7 bankruptcies are liquidation plans whereby the assets of the business are sold and the company ceases operations.

Merisant will continue to operate, but is filing for Chapter 11 protection because they cannot operate and pay all of their creditors 100% of their credit obligations.

In Chapter 11, the debtor continues to control the business but is subject to the oversight and jurisdiction of the court.

Surprisingly, no job losses are expected. Merisant has suffered financially as the artificial sweetener Splenda has taken a share of the market. Nutrasweet was discovered in 1965 and was approved by the FDA in 1981.

Big Lenders Show Support for Allowing Bankruptcy Judges to Re-write Mortgages to Prevent Home Foreclosure

by Sundeep Kothari

Atlanta Bankruptcy Attorney

Bankruptcy Primary Home Foreclosure Cramdowns Considered

Citi supports allowing bankruptcy judges to re-write primary home mortgages to prevent home foreclosures.

This is a massive shift by a major lender. Before, many lenders were against this proposal, with the thinking that people who signed these contracts should live up to them, regardless of their current circumstances. However, with the flood of foreclosures and people not paying, this would allow some people to remain in their homes.

This type of legislation would be helpful for certain individuals. An example would be this: someone has a house with a 150,000 mortgage. Now that house is worth 120,000. So that person has a negative equity of 30,000. That person may consider just surrendering their house and moving into an apartment, since it would take a long time to re-adjust the equity loss.

With the new legislation, it may be possible for bankruptcy judges to re-write the loan so that it is now a 120,000 mortgage as the house is worth 120,000.

The legislation has not even been introduced yet, so this is NOT an option right now.

But this topic is something that homeowners should be watching. The best advice is to contact your local U.S. Representative and U.S. Senator and let them know what where you stand on this issue.

Jon Bon Jovi to help Senator Clinton with her debt problems

by Sundeep Kothari

Bon Jovi rocks for Hillary

Rocker Jon Bon Jovi, leader singer of Bon Jovi, will help Senator Hillary Clinton pay down her campaign debt.

The Jan. 15 performance at Manhattan’s Town Hall is called “a final evening in support of Hillary Clinton for President Debt Relief.” Ticket prices range from $75 to $1,000.

Madoff bankruptcy trustee sued for $10 million

by Sundeep Kothari

Madoff trustee sued