The US House of Representatives is scheduled to vote Thursday on a bill that will enable homeowners to modify their mortgages in chapter 13 bankruptcy.

These mortgage modifications are known by the more vernacular term, “cram downs.”  Under the proposed law, a bankruptcy judge could reduce the balance of a first mortgage to fair market value and re-amortize it, reducing the monthly payments and making it easier for financially distressed homeowners to keep their homes.  Chip Parker of Bankruptcy Law Network explains in detail here.

This legislation would help stem the tide of foreclosures by encouraging lenders to cram down mortgages out of court on terms they negotiate with the homeowner rather than having a bankruptcy judge impose them. 

Either way, fewer economically strapped homeowners would lose their homes and house prices in neighborhoods decimated by foreclosures would have a chance to stabilize.

Members of the mortgage industry are rattling the bars of their playpens in protest.  Permitting chapter 13 mortgage cram downs would have long-term regulatory side effects, as described in “Just Say Yes To Cram Downs” by the late, great Tanta of Calculated Risk:

In fact, I have some sympathy with the view that mortgage lenders “perform a valuable social service through their loans.” That’s why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you’re a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are “affordable” only for a year or two, if you face having that loan restructured in Chapter 13. 

The photo of my burning credit cards is symbolic on several levels.

I burned them after I received my Chapter 7 debt discharge letter, which finalized the death of my old credit lines.  The cards were completely useless.  It was time for them to go. 

Burning my cards symbolically cleansed my irresponsible financial habits and started a new life of living within my means.

It is symbolic of our culture of easy credit and instant financial gratification going up in flames. 

What rises from the ashes will be up to us.    

From Bloomberg:

Robert Allen Stanford, the alleged mastermind of this month’s Ponzi scheme, once boasted of his plan for a private island mega-resort, a Club Med on steroids for the exponentially rich.  From Dealbook:

In an October 2008 article, Mr. Stanford told Forbes that he was planning to build an elite resort on what the magazine described as an “undisclosed island in the Caribbean.” At the time, Mr. Stanford said that he was working with 17 architectural and engineering firms to build 30 mansions for a development to be called the Islands Club.

Scheduled to open in 2011, it would have featured the largest private aviation complex in the world, Forbes said, with enough room to park 100 private jets as well as a jumbo marina with enough dock space for 30 massive yachts. The super-exclusive resort would require members to shell out a $50 million deposit, which would be refunded if they left the development. That was on top of the $15 million annual membership fee.

Dealbreaker took a James Bond angle:

All we need now is to blow up Tim Geithner’s seaplane with a solar powered laser and for Nick Nack to show up and start tempting regulators into a funhouse gun battle on the Man With The Golden Gun’s private island.

New York Magazine’s Daily Intel took its cue from “Lost,” pasting Stanford’s head on Ben’s parka-clad body as he was about to turn the wheel in the Orchid Station’s secret underground cavern (you can watch the show online).

I see a combination “Wall Street” sequel/“Apocalypse Now” tribute (is this a great pitch or what?):

• Bud Fox (Charlie Sheen) is finishing his time in a post-prison federal halfway house.  Men from an undefined agency visit him and make an offer; “terminate the Ponzi – with extreme prejudice” and he will receive a presidential pardon.  Charlie reprises his dad’s role in “Apocalypse” and gives the publicists a great marketing hook.

Read the rest of this entry »

I beat Lehman Brothers to bankruptcy court by five days last September.  My path to BK began in 1994, when I triumphantly paid off $15,000 in credit card debt I had accumulated during the dry spells in my career as a freelance Hollywood assistant sound editor. 

Did I learn my lesson and resolve to stringently budget myself and never live off my credit cards again?

No.

I went through an ongoing cycle of hot work years followed by cold ones.  My plan (if I even had one) was to dip into my credit to get by in the cold years and pay it down in the hot ones.  My last weekly salary was $1900 a week.  If I worked eight or so months a year for three or four years straight, I could bring my debt under control.

My debt began to grow as the cold years multiplied (1996, 1997, 2002, 2005, 2007, 2008) and I went back to using credit cards to pay my rent, basic expenses, and other credit card bills.

I confess.  I did it.  There were way too many beers, breakfasts, dinners and glasses of wine in restaurants where you pay up for the privilege of sitting in a chair two blocks from the beach.  There were plane tickets to visit family and friends and charges for concert tickets, weekend kayak trips, books, CDs and whatever else my impulses led me to buy. Read the rest of this entry »

John Coltrane, “My Favorite Things.” 

• Avoid bankruptcy if you can.  A BK will stay on your credit reports for seven to 10 years, and any decent person hates going back on his or her word.  Still, ask yourself if you’re trying to avoid bankruptcy for purely egocentric/ethical reasons.   

From MSN Money’s Liz Pulliam Weston:

If, despite your best efforts, it would take more than five years to pay off your credit cards and medical bills, or you would need to use assets that would otherwise be protected in bankruptcy — like retirement accounts and home equity — then you should at least consult with a bankruptcy attorney about your options.

I wouldn’t recommend bankruptcy any more than I would recommend amputating part of a leg.  But if you have late stage bone cancer and you’ve exhausted every other possible treatment option, you do what you have to do.

• Don’t max out your credit cards.  Until I had the fortunate moment of clarity that led me find a BK attorney, I thought I’d wait a few months and, if I maxed out, look into bankruptcy then.  This is considered credit card fraud and your creditors can challenge your bankruptcy for it.

• Your sense of honor may tempt you to pay off a low-balance card or two before you file.  Don’t.  When your debts are discharged, you will lose all of your credit cards regardless of your account balances.  Put the money towards hiring a good attorney.

• If you have a credit card or credit line with your current bank, open checking and savings accounts with another bank and shift your money over before you file.  Otherwise, the banks may freeze your money once they are notified you have filed your BK.  If you don’t owe your bank any money, you’ll probably be fine. 

• Hire an attorney.  Yes, you can get the petition forms online and do it yourself.  Thanks to the so-called bankruptcy “reform” legislation of 2005, filing a BK is a complicated maze of income requirements and other regulatory hoops.  You’re better off having an attorney lead you through the process and prepare your petition.  Otherwise, you risk having to return for another trustee meeting to correct your petition’s mistakes and you are naked and defenseless if your creditors come after you.  Read the rest of this entry »

About half of all bankruptcies in this country are the result of high, unpayable medical bills.  A television commercial ran during the fall election season that featured interviews of people who were hit with unexpected health emergencies and weren’t adequately covered by their health insurance, if they had any at all.  Two of them said something like, “I’m embarrassed to say this, but I had to file for bankruptcy.” 

Go to Europe or Canada and ask people on the street if anybody in their country goes bankrupt due to high medical bills and they will look for the psych ward ID bracelet on your wrist.  Here in the US we twice elected president a man so delusional he thought “people could just go to emergency rooms” if they didn’t have health insurance, as if emergency rooms dispensed chemotherapy, kidney transplants and triple-bypass surgery.  

From “Anatomy Of A Medical Bankruptcy” courtesy of the EconoWhiner:

But the most important thing that happened during that meeting was this: Before we had even been there 10 minutes, part way through her intake interview with us, the lawyer set her pen down, folded her hands on top of her desk, and looked at my husband. ”Listen to me, and listen very carefully,” she said. “This is not your fault. Let me say that again: This is not your fault.”