Thursday, May 27, 2010

Means Test and college tuition

Here at Shenwick & Associates, we are getting many calls about the means test and college tuition; specifically, whether the high cost of college tuition is a deductible expense on the means test. As many of you know, in 2005, Congress radically changed the personal bankruptcy law and instituted median income and means testing to limit the number of individuals who would be able to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy is a liquidation or "fresh start," in which debtors can liquidate or discharge most of their debts. To limit the number of filers, Congress provided that if a debtor exceeded the median income in their state, then there is a presumption that they are not entitled to file for Chapter 7 bankruptcy unless they pass the means test. The median income is adjusted periodically. For bankruptcy cases filed on or after March 15, 2010, the median income in New York State is $46,320 for a family of one, $57,902 for a family of two, $69,174 for a family of three and $82,164 for a family of four (add $7,500 for each individual in excess of four),.

The means test is an extremely complicated calculation (it is a six page calculation, similar to a 1040 tax return for an individual) that is based on a debtor's income and expenses. The expenses are, in general, pegged to the allowable expenses in an offer of compromise with the IRS.

The questions that arises is whether the cost of college tuition (at a private college or a public university) is deductible for the purposes of the means test calculation. Unfortunately, the majority of cases hold that college tuition is, in fact, not deductible, because Congress failed to allow college tuition as a deduction in the means test. A number of Bankruptcy Courts have reviewed this issue, and have held that college tuition is not deductible.

For example, in In re Saffrin, 380 B.R. 191 (Bankr. N.D. Ill 2007), the Bankruptcy Court held that the debtors could not deduct their daughter's college expenses on the means test because the Bankruptcy Code only allows elementary or secondary educational expenses for dependent children under 18.

Similarly, in In re Boyd, 378 B.R. 81 (Bankr. M.D. Pa. 2007), the Bankruptcy Court found that the debtors could not deduct their adult daughter's college education on the means test because the Bankruptcy Code does not expressly provide such deduction, and college tuition does not qualify to be included on line 59 of the means test under "Other Necessary Expenses."

However, notwithstanding the fact that college tuition is not deductible for the means test, debtors may have other expenses that will be sufficient for them to pass the means test and file for Chapter 7 bankruptcy.

Any individuals having questions about Chapter 7 bankruptcy or the means test are encouraged to contact Jim Shenwick.

Friday, May 21, 2010

AP: Millions of jobs are gone forever


WASHINGTON — Fewer construction workers will be needed. Don't expect as many interior designers or advertising copywriters, either. Retailers will get by with leaner staffs.

The economy is strengthening. But millions of jobs lost in the recession could be gone for good.

And unlike in past recessions, jobs in the beleaguered manufacturing sector aren't the only ones likely lost forever. What sets the Great Recession apart is the variety of jobs that may not return.

That helps explain why economists think it will take at least five years for the economy to regain the 8.2 million jobs wiped out by the recession — longer than in any other recovery since World War II.

It means that even as the economy strengthens, more Americans could face years out of work. Already, the percentage of the labor force unemployed for six months or longer is 4.3 percent. That's the highest rate on records dating to 1948.

Behind the trend are the cutbacks businesses made in the recession to make up for a loss of customers. To sustain earnings, they became more productive: They found ways to produce the same level of goods or services with fewer workers. Automation, global competition and technological efficiencies helped solidify the trend.

Diminished home equity and investment accounts have made shoppers more cautious, too. And their frugality could endure well into the recovery. That's why fewer retail workers, among others, will likely be needed.

Among those whose former jobs may be gone for good are:

_ Julie Weber of Milwaukee, who designed office cubicles for nearly seven years. She lost her job about a year ago. Since then, she's been able to find only part-time work outside her field. Interior design was hammered by the real estate downturn. "My hope for getting back into the industry is not very high," says Weber, 29.

_ Erik Proulx, 38, a former advertising copywriter in Boston, who finds more companies are turning to social media and viral marketing and are less drawn to agencies that focus on traditional TV and print ad campaigns. Proulx was laid off in October 2008 — the third time an employer had cut his position or had closed. He no longer wants to rejoin the industry. Proulx has started a blog to help other unemployed ad professionals network.

_ Louis DiFilippo, 30, who decided to study information technology after losing his job managing a gourmet food store in Washington, D.C. After six months of unemployment, he embraced a career with more stability. He now works on computer network security for the Navy. "I'm much happier now," he said.

More than one-third of chief financial officers at 620 big companies surveyed in March by Duke University and CFO magazine said they didn't expect to restore their payrolls to pre-recession levels for at least three years. Nearly all cited higher productivity and tepid consumer spending.

"Companies have just figured out, 'We didn't want to fire people ... but now that they're gone, we've realized that we can get by without them,'" said John Graham, a Duke finance professor who directed the survey.

Productivity grew at an annual rate of 6.3 percent in the year ending in March, the Labor Department said this month. It was the largest increase in 48 years, though most economists think that pace isn't sustainable.

In the long run, more productive workers raise standards of living: Companies can pay more without inflating prices. But in the short run, high productivity delays hiring.

U.S. employers did add 290,000 jobs in April. The unemployment rate rose to 9.9 percent, though, because 805,000 people without jobs poured into the labor force to seek work.

Three industries, in particular, where many jobs may not be coming back are retailing, manufacturing and advertising.

Retailers have lost 1.2 million, or 7.5 percent, of jobs that existed before the recession, according to Labor Department data. Circuit City and Linens & Things have collapsed. Starbucks closed nearly 800 U.S. stores. Robert Yerex, an economist at Kronos, a work force management company, estimates 20 percent of those jobs are never coming back.

Manufacturing has shed 2.1 million jobs, or 16 percent of its total, since the recession began. Goodyear Tire & Rubber and Boeing Co. laid off a combined 15,700 people during the recession. General Motors eliminated 65,000 through buyouts and layoffs. And as Americans buy fewer cars and homes, more than 1 million jobs in the auto, steel, furniture and other manufacturing industries won't return, according to estimates by Moody's Analytics.

Advertising and PR agencies have lost 65,000 jobs, or about 14 percent of the pre-recession total. Moody's Analytics estimates those industries will lose even more within five years.

In addition, a consolidated airline industry has shed layers of jobs that won't likely return. Delta Air Lines earlier this year spread out departure times for flights from its Cincinnati hub, rather than bunching them at peak travel times. That way, it could operate from one concourse rather than two, said Kent Landers, a spokesman. The change allowed a Delta subsidiary, Regional Elite Airline Services, to cut more than 700 baggage handling and other ground services jobs.

More than half the 15.3 million people out of work in April said they regard their layoff as permanent, the Labor Department said. That's the highest proportion on records dating to 1967. In previous recessions, workers often endured only temporary layoffs: Their employers would recall them once business picked up.

Caterpillar Inc. has resumed hiring after laying off 19,000 full-time workers during the recession, thanks to rising demand for its construction and mining equipment. But most of the new jobs will be overseas. Of the 9,000 hires CEO Jim Owens said Caterpillar plans to make this year, only 3,000 will be in the U.S.

Many economists say eventually, companies won't be able to squeeze any more work out of their employees. That would force employers to step up hiring.

But Janet Yellen, president of the Federal Reserve Bank of San Francisco, cautions that this won't happen anytime soon. She believes corporate America remains in the early stages of a drive for greater efficiencies.

"We may be in store for ... high productivity growth for some time," she said in a speech this year. "If so, the rate of job creation will be frustratingly slow."

Copyright © 2010 The Associated Press. All rights reserved.

Monday, May 10, 2010

NYT: In New York, Some Judges Are Now Skeptical About Debt Collectors’ Claims


As New Yorkers have tumbled into credit card debt in large numbers during the great recession, bill collectors have inundated the courts to get what they say is due. In turn, the courts have issued hundreds of thousands of orders against residents. Some consumer groups argue that by doing so, the courts have become little more than an arm of the debt collection industry.

Now, a few judges in New York State are suggesting that they agree, at least in part, with the consumer groups. They have fumed at debt collectors and their lawyers, scolding them for interest as high as 30 percent a year and berating them for false statements and abusive practices.

Some of the rulings have even been sarcastic or incredulous. In December, a Staten Island judge said debt collectors seemed to think their lawsuits were taking place in a legal Land of Oz, where everyone was supposed to follow anticonsumer rules invented by some unseen debt-collection wizard.

Last month, a Manhattan appeals court threw out a credit card case, saying a debt collection company had sued the wrong person but pursued the case anyway.

“I think these judges are outraged at the status quo, and they’re trying to change it,” said Janet Ray Kalson, a Manhattan lawyer who is the chairwoman of a City Bar Association committee that has studied the deluge of credit card cases.

Debt-buyer businesses purchase debts — along with lists of names and amounts supposedly due — for pennies on the dollar from credit card companies and sometimes have no real evidence about whom they are suing or why. They then file tens of thousands of suits, often with little to back up their claims.

A Nassau County District Court judge said recently, for example, that one of New York City’s high-volume debt collection law firms, which has close ties to a debt-buying company, did not provide “a scintilla of evidence” that there was even a debt in a case against a Long Island woman.

The suit received an unusual amount of attention. The judge, Michael A. Ciaffa, said that it “regrettably, involves a veritable ‘perfect storm’ of mistakes, errors, misdeeds and improper litigation practices.” Judge Ciaffa said the law firm, Eltman, Eltman & Cooper, ignored court orders, made a “demonstrably false” assertion and harassed the woman for payment even after its suit was dismissed.

The case before Judge Ciaffa ended with an order that is far from typical in a credit card suit. The woman who had been sued, Patricia Bohnet, a bookkeeper and single mother, did not have to pay anything. But Eltman, Eltman & Cooper had to pay $14,800 in sanctions for violating ethical rules at least 18 times. Under the judge’s order, $4,800 is to go to Ms. Bohnet and the remainder to a state fund that works to reimburse clients for dishonest conduct by lawyers.

“They don’t care if you’re sick; they don’t care if you’re poor,” Ms. Bohnet said in an interview at her job in Woodmere. “Their only job is to collect money, and they’ll do it in any way possible.”

In response to questions, the law firm said in a written statement that Judge Ciaffa had not had all the facts but that the firm would not appeal. “As with any firm or business that handles this type of volume,” it added, “there exists a potential for errors or omissions in the normal course of business.”

Eltman, Eltman & Cooper was one of 35 law firms sued last July by the state, which claimed that they had improperly obtained more than 100,000 judgments in consumer-debt cases. Separate files in Federal District Court in Brooklyn show that without admitting fault, the Eltman law firm settled a class-action suit in 2006 that claimed it used “false, misleading and deceptive means” to collect debts.

Privately, some judges say they are embarrassed that in many New York courts, debt-collection lawyers have grown so comfortable that they give the impression they are in charge of the proceedings and do not need prove their claims with strong evidence.

In the recent pro-consumer rulings, skepticism of the debt collectors’ claims has been obvious. A Civil Court judge in Brooklyn, Noach Dear, has written decisions that come close to saying that the collection cases are sometimes based on falsehoods.

In a case in August, Judge Dear observed that there was nothing to substantiate a lawyer’s claim that she somehow remembered mailing a document to the credit card holder that was the foundation of the collection suit. The document, Judge Dear noted archly, had been mailed three and a half years earlier.

Behind the legalese of the credit card suits, some judges have suggested, there is often a disorganized jumble of documentation. A Mount Vernon City Court judge noted that one case was based on little more than “a self-serving computer printout.” A Manhattan judge said one company that bought debt claims from credit card companies had filed suit against a cardholder although it did not own that particular debt.

In the Staten Island case, the judge, Philip S. Straniere, said a credit card company was claiming interest of 28 percent on the balance due, which would be illegal as usury under New York law. The company argued that the credit card issued to a New Yorker that seemed to be from a national company had actually been issued by a one-branch bank in Utah, which had no usury law.

“Like the Land of Oz, run by a Wizard who no one has ever seen,” Judge Straniere wrote, “the Land of Credit Cards permits consumers to be bound by agreements they never sign, agreements they may never have received, subject to change without notice and the laws of a state other than those existing where they reside.”

The judge ruled that the supposed agreement allowing unlimited interest charges was not enforceable in New York.

Industry officials said that tales of abusive collection cases were misleading. “There are certainly colorful stories,” said Joann Needleman, an officer of the National Association of Retail Collection Attorneys. “People think that handful is the rule, not the exception, but it’s not.”

But Ms. Bohnet, the Long Island woman who was sued by a New York law firm, said just one case could be harrowing. When she received a call last year at the charity where she keeps the books for $39,000 a year, the voice on the other end told her the debt collectors had a five-year-old court judgment against her for a $4,861 debt. She had to pay, or they would start taking money out of her salary, she said she was told.

The address of the debt-collection firm and its lawyers at Eltman, Eltman & Cooper seemed to be the same, she noticed.

Ms. Bohnet did not know she had ever been sued. She started to cry, she said, worried that with a chunk of money taken every month, she might lose the modest apartment she needed to share custody of her teenage daughter.

“I was in all-out fear,” she said, adding, “After I got off the phone, I realized I didn’t even know what the debt was for.” She might have had an old credit card debt, but she had had some years of problems with alcohol and drugs and tangled financial problems. In recovery, she said, she had worked to clean up her financial affairs.

The next time the collectors called, she said, she told them that she was willing to pay if she owed any money but that she needed to see some proof that they had the right person. Then, without a lawyer, she went to the court, in Hempstead, to check into the order the debt collectors said they had against her.

After some digging, she found the case. The debt-buyer’s lawyers had filed a sworn statement that they said was proof she had been given notice of the suit. A process server for Eltman, Eltman & Cooper claimed she had been given a copy of the suit personally on July 30, 2004.

Judge Ciaffa doubted that. Ms. Bohnet, he wrote, “hadn’t lived at that address since 1998.”

Copyright 2010 The New York Times Company. All rights reserved.

Friday, May 07, 2010 Congress may extend bankruptcy relief to private student loans

By Diana Costello.

College graduates overwhelmed by private student
loans could see bankruptcy relief if proposed
legislation makes its way through Capitol Hill.

Bills recently introduced in the Senate and House
aim to treat private student loans more like credit
card and other consumer debts — meaning they
would be discharged if a borrower meets the court's
strict bankruptcy criteria.

Since 2005, bankruptcy law has prohibited private
student loans from being shed in all but the most
extreme cases. Other types of debt in this category
include overdue taxes and criminal fines.

Those who deal with bankruptcy proceedings say
the debate can be boiled down to a simple maxim:
"Where you sit depends on where you stand," White
Plains attorney Jeffery Binder says.

"If you believe ultimately it's the consumer's
responsibility to not take on more debt than you can
handle ... then you'll come down on the side of the
lender," Binder said. "If you believe that lenders
engage in practices that were predatory or
misleading ... then you'll come down on the side of
those who feel this is no different from any other
consumer loan and should be discharged in

The discussion comes as more students are turning
to private student loans to finance their college
ambitions — which themselves are growing ever
more expensive.

A more robust economic outlook and changes to
student lending enacted as part of the health-care
reform law are also thought to be encouraging
private lenders back into the market.

The average nonfederal debt per student was
$17,000 in 2007-08, The College Board says.

The volume of private student loans rose to $22.3
billion in 2007-08 from $15.1 billion in 2004-05,
according to The College Board's Trends in Student

The credit crunch that froze financial markets,
however, also hit private student lending — pushing
down private borrowing by half during the 2008-09
school year to $11 billion.

Still, private student loans are growing more rapidly
than federal student loans, and if trends continue,
the volume of private loans would surpass that of
federal loans by 2025, according to, a
comprehensive website devoted to financial aid.

Supporters of the Private Student Loan Bankruptcy
Fairness Act of 2010 argue that private borrowers
lack important consumer protections that come with
federal loans — such as deferment plans and
income-based repayment options.

Under legislation enacted in 2007, borrowers who
work in public service jobs for at least 10 years can
qualify to have the balance of their student loans

Also, private loans typically carry variable interest
rates that are higher for those who can least afford
them, supporters say.

"Struggling borrowers have virtually no way to make
private loan debt more manageable because lenders
can simply refuse to negotiate affordable terms,"
said Lauren Asher, president of the Institute for
College Access and Success, which runs the Project
on Student Debt.

"People who borrowed for college and played by the
rules deserve basic consumer protections and fair
treatment when they hit hard times," Asher said.

Opponents, however, argue that such a change
could make it more difficult to secure private
funding for high education.

They also are concerned people would game the
system by running straight to bankruptcy court to
shed their debt obligation.

During a hearing on the plan earlier this month,
Rep. Trent Franks, R-Ariz., the House Judiciary
Committee's ranking minority member, said that
while reform is necessary, he is fearful about the
bill's potential consequences.

"If lenders are forced to scale back student lending
because private student loans are subject to
bankruptcy discharge, many students will be denied
access to higher education," Franks said.

Copyright 2010 The Journal News, a Gannett Co. Inc. newspaper serving Westchester, Rockland and Putnam counties in New York.

NYT: As Homeowners’ Dreams Die, He’s the Undertaker


LAKE VILLA, Ill. — If you see Joseph Laubinger on your doorstep, start packing. His courtly presence means you have exhausted all excuses, arguments and options for keeping your house.

“It’s like I’m a doctor,” said Mr. Laubinger, an agent here for big lenders. “People ask me how much time they have left.”

Hardly any. Legally, they have already lost ownership. If they do not respond to the carrot the lenders offer — as much as $5,000 in cash in exchange for leaving the house in good order — he employs the stick: the county sheriff, who evicts them.

Mr. Laubinger is having a busy spring. Nearly four million households nationwide are severely delinquent on their mortgages, the biggest backlog since the housing crisis began. As more and more of the homes edge toward repossession — a record quarter of a million were seized by lenders in the first three months of this year — agents like Mr. Laubinger are trying to coax people out.

Sometimes, the process is briskly efficient. The occupants have either abandoned the home or are methodically planning their departure well before Mr. Laubinger arrives bearing an incentive officially known as relocation assistance but always called cash for keys.

But the end game of foreclosure is typically neither smooth nor quick. Some people have nowhere to go, and others see no reason to go. The lenders need someone on the scene who can resolve the situation without escalating it, which is why Mr. Laubinger is getting an abundance of assignments from the country’s largest lenders as well as Fannie Mae, the government’s mortgage holding company.

The agent’s garage is stacked with desks and chairs, bought recently at a county government auction. “I’m expanding,” he said, with immediate plans to hire two more agents to join his four-person shop. He makes at most a small fee for getting the people out; his reward comes with the commission in selling the house.

Mr. Laubinger is 60, a onetime graphic artist who has been buying and selling real estate for himself and others for a quarter-century. When times were good, he spent as fast as he could. “I spun my wheels like a madman,” he said.

His territory is the northern edge of Illinois and the southernmost slice of Wisconsin — a 600-square-mile expanse that encompasses middle-class suburbs built in the last 10 years, resort homes that dot the region’s many lakes and decaying cottages bought by hard-scrabble immigrants.

People in all those places are hurting, which is good for Mr. Laubinger’s bottom line. Yet he shudders if anyone calls him a “repo man,” and is actually a soft touch. He is quick to grant extensions to the people who ask, even though this pushes the sale of the property, and his payday, further into the future.

In the debate over whether the foreclosed are deadbeats or victims, co-conspirators with the avaricious banks or merely collateral damage, the agent nearly always takes the benign view. The most critical thing he will say is, “Everyone got greedy, and now everyone is passing the buck.”

On a recent Saturday he had three houses to check up on, two in foreclosure and one trembling on the verge. Fannie Mae was sending him to examine one of the properties, where the owners had lost ownership in December but declined to decamp. A bank wanted him to snap photos of a second site, a high-end house whose defaulting owners were seeking a modification.

The occupants of the third house, Israel Lopez and Blanca Sanchez, had finally agreed to move out after months of negotiating. Mr. Laubinger had a check for $1,800 waiting for them.

Expecting a bustle of activity, the agent found the place quiet. Clearly, no one was going anywhere. Only a young boy was home. Mr. Laubinger left a message for the parents.

“They basically blew me off,” he said as he drove away. It’s a common problem: “People are staying longer because they’re not afraid.”

The house he was hired to photograph was in an upscale community, but the owners, who were either not home or not answering the door, were clearly suffering. The driveway was pocked with holes and the lawn full of weeds, a sharp contrast to the well-manicured neighbors.

Perhaps a modification would save them, but as Mr. Laubinger took his pictures, he said he had a bad feeling. “I’ll be coming back here, taking this to the next level,” he predicted.

His phone rang. It was Mrs. Sanchez. “We haven’t found anywhere to go,” she said. “We were wondering if any more extensions could be given.”

Mr. Laubinger was noncommittal but said she would not be evicted that weekend. That was all Mrs. Sanchez wanted to hear.

“They’re doing the math,” he said. “More time is better than the $1,800 I was going to give them to leave.” If he has to order a formal eviction with the sheriff, the paperwork and processing might take all summer.

The last house he visited that day was the one owned by Fannie Mae. Bajrak and Beata Lukasz, a Polish couple in their mid-30s, bought it for $190,000 in 2003 and then took $50,000 in cash out through refinancing and a home equity loan. That swelled their debt and made the house impossible to sell after the crash.

On Dec. 12, when Mr. Laubinger first visited, the couple had been in default for eight months but said they were getting a modification. Since then, Mr. Lukasz had not returned messages left on his cellphone. So after five months, Fannie Mae sent Mr. Laubinger again.

Mr. Lukasz finally emerged, saying his wife was ill with Crohn’s disease, a chronic inflammation of the intestines. Forced to choose between the mortgage and medicine, he said they had chosen the drugs. But he agreed to move out for $1,500 and provided a new cellphone number.

Back in his car, Mr. Laubinger stifled a sob. “That one hurts,” he said. “There’s an honest man, doing everything he can.”

Night fell as Mr. Laubinger pulled back into his own driveway here, about 90 minutes’ drive northwest of Chicago. He was not sure he had accomplished much. But a few days later, to his surprise, the Lopez-Sanchez family agreed to leave after all.

When the agent showed up at the appointed time with the check and a locksmith to rekey the doors, the couple was still carrying things out to their battered Ford Windstar: a big-screen TV, a huge teddy bear, a steaming pot of beef stew for the evening meal.

Mr. Lopez, 31, said he had lost his job early last year after the construction company he worked for went bankrupt. “I had been paying the mortgage every month, but I told my wife, ‘No more sense in that,’ ” he said.

The family’s fortunes may be on the mend. Mr. Lopez was hopeful that he would soon be starting work on a highway crew. Until the family can get back on its feet, their church agreed to give shelter to the couple and their four children.

Finally, the house was empty. Mr. Lopez signed the documents and then pocketed the check without looking at it. Mrs. Sanchez sniffled quietly. It was not emotion, she said, but allergies. The couple drove off in the overloaded Windstar without a backward look.

Mr. Laubinger surveyed the house. It needed paint, new carpet, repairs. He hoped to have it listed in a few weeks for $110,000.

If too many foreclosed properties hit the market at once, the housing market may take another dive. The agent said that was a necessary risk. “We have to get through this,” he said.

Easier said than done, perhaps. The Lukaszes have consulted a lawyer and intend to stay put as long as possible.

“The banks got so much from us, including a large down payment, I think it’s fair we’re not paying,” said Mr. Lukasz, who works the night shift in an envelope factory. “We’ll stay here until an hour before the sheriff.”

Mr. Laubinger will keep working on them, but he knows that they might be in their house for many months. “This crisis,” he said, “will serve me the rest of my career.”

Copyright 2010 The New York Times Company. All rights reserved.