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Ill. lawmakers target practice of jailing debtors
CHICAGO — Jailed for unpaid debts? It happened to breast cancer survivor Lisa Lindsay.
She got a $280 medical bill in error and was told she didn’t have to pay it. But the bill was turned over to a collection agency, and eventually state troopers showed up at her home and took her to jail in handcuffs.
Debt collectors have become so aggressive in some parts of Illinois that they commonly use taxpayer-financed courts, sheriff’s deputies and county jails to squeeze poor people who fall behind on small payments of $25 or $50 a month, according to supporters of the proposed legislative reforms. Lawmakers in Springfield are pushing to make it harder to jail poor people who miss court dates or are found in contempt of court as they struggle with unpaid debts — an aggressive practice that got worse, some say, during the recession.
Lindsay, a teaching assistant from Herrin in southern Illinois, ended up paying more than $600 because legal fees had been added to the original amount.
“I paid it in full so they couldn’t do it to me again,” Lindsay said.
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Student Loan Debt Slaves In Perpetuity – A True Story Of “Bankruptcy Hell”
The numeric implications as well as the magnitude of the student loan bubble have been discussed extensively before. Yet just like most people’s eyes gloss over when they hear billions, trillions or quadrillions, so seeing the exponential chart of Federal Student debt merely brings up memories of a math lesson from high school, or at best, makes one think of statistics. And as we all know statistics are faceless, nameless and can never apply to anyone else. It is the individual case studies that have the most impact. Which is why we would like to introduce you to Devin and Sarah Stang – student loan debt slaves in perpetuity.
First, for those who are still unfamiliar with the brush strokes, here is the big picture, courtesy of AP:
The Federal Reserve Bank of New York estimates 37 million Americans have student loan debt, totaling $870 billion. The average balance is around $23,000 (though that partly reflects a relatively small number of very large balances; the median is $12,800). Only 39 percent are paying down balances. An estimated 5.4 million borrowers have at least one student loan account past due.
Roughly 85 percent of outstanding student loan debt is owed to the federal government. The remaining 15 percent that’s counted as private student debt is owed to various non-federal lenders, ranging from banks to loan companies like Sallie Mae Corp. to non-profits and state-affiliated agencies (under the Durbin bill, loans from any government-funded entity still wouldn’t be dischargeable, only those from truly private lenders).
Generally, it’s these private loans that bring borrowers to the door of bankruptcy lawyers like Barrett. Private student loans often lack the protections of federal ones, and have rates that typically start higher and can shoot up. A recent survey of bankruptcy attorneys found 81 percent reporting more clients with student debt in recent years, and roughly half reporting a significant increase.
And, also by way of background to those unfamiliar, student debt has a very peculiar feature:
Virtually any other kind of debt — including medical bills, mortgage, credit cards and car loans, even gambling losses— can be discharged in bankruptcy, allowing the “honest but unlucky” a chance to restore their footing through an arduous restructuring overseen by a court.
But under a 2005 law passed by Congress to protect lenders, private student loans fall under the same nearly-impossible-to-clear category as child support payments and criminal fines.
“It’s a huge part of why the younger generations are here now,” said the Stangs’ bankruptcy lawyer, Matthew Barrett, whose busy office in Amherst, west of Cleveland, belies stories about the improving economy. He estimates half his clients have problems with student debt.
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Recent: Jon Corzine, MF Global
(Bloomberg) — Bill Fleckenstein, president of Fleckenstein Capital Inc. and a futures customer of MF Global Holding Ltd.’s brokerage unit, talks about the prospects of getting back the money he is owed and the legal liability of former MF Global Chief Executive Officer Jon Corzine over a transfer of funds from a customer account. Fleckenstein speaks with on Bloomberg Television’s “InBusiness With Margaret Brennan.”
(Bloomberg) — James Koutoulas, chief executive officer of Typhon Capital Management and president of the Commodity Customer Coalition, and Douglas Burns, a former federal prosecutor, talk about an internal e-mail from MF Global Holdings Ltd. employee Edith O’Brien linking former CEO Jon Corzine to the transfer of funds from a customer account to meet an overdraft with JPMorgan Chase & Co. The Commodity Customer Coalition was formed out of the liquidation of MF’s brokerage. Burns and Koutoulas speak with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s.
Criminal Defense Attorney Marc Fernich on CNN’s Erin Burnett OutFront talking about Jon Corzine, the former chief executive of MF Global new email about missing funds.
Study: Bankruptcy filings rise in US
New research from economists at Columbia University, the University of Chicago, and Washington University in St. Louis reveals that bankruptcy filings in the United States actually increase after Americans receive tax refunds.
It costs money to file for bankruptcy and many Americans could not afford to pay the average of $1,477 in fees necessary, write economists Tal Gross, Matthew Notowidigdo, and Jialan Wan.
Total bankruptcies rose 7 percent in 2008 after Americans received their tax refunds, according to their research.
Going broke wasn’t always so expensive. The turning point was the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which increased by 60 percent the legal and administrative fees necessary to file for bankruptcy, according to the paper. The law also mandated that people had to pay for their own credit counseling before filing.
While total bankruptcies rose 2 percent after tax rebates in 2001, they increased 7 percent in 2008: a more than threefold increase.
The authors of the paper concluded that the increased fees prevent households low on cash from filing for bankruptcy, rather than screen out households that would not gain much from bankruptcy.
The 2005 bankruptcy law severely curtailed Americans’ ability to file for bankruptcy. Though… Continue reading
Lawmakers blast proposed bonuses for MF Global executives
Former clients of MF Global expressed outrage last week over reports that Louis Freeh, the trustee overseeing the company’s liquidation, planned to ask a bankruptcy judge to approve sizable bonuses for nearly two dozen top executives at the failed firm. Now they have allies on Capitol Hill who share their frustration.
Sen. Jon Tester, D-Mont., sent a letter to Freeh calling such bonuses “outrageous,” and Sen. Amy Klobuchar, D-Minn., called the bonus plan “simply unacceptable” in a letter she sent to Freeh. Sen. Chuck Grassley, R-Iowa, said in a statement, “It seems like the last thing the executives should see is a six-figure bonus for trying to undo the mess they helped to create.” Grassley sponsored legislation in 2005 that significantly changed U.S. bankruptcy law.
Late Monday Freeh said in a letter to Tester that he had not made any decisions on possible bonuses for MF Global executives, “notwithstanding reports to the contrary that have appeared in the media.”
When MF Global capsized last October, it left behind an enormous snarl of poorly kept records and customer accounts that had been depleted by as much as $1.6 billion, some of which still has not been found. Some former MF Global clients are said to have received less than 75 cents on the dollar of their money back.
“The mere notion that senior officials of a firm that has failed to account for … clients’ losses should get a performance-based bonus is troubling,” Tester wrote.
Untangling the numerous transfers made during the troubled firm’s final days will be a monumental task, one Freeh’s representatives have argued could be most effectively accomplished by the executives who were there at that time. The alternate option, bringing in outside consultants and accountants, would be more expensive, they said.
The bonuses have been referred to as performance bonuses rather than retention payments. Performance-based bonuses are allowed under bankruptcy law, which has led some critics to charge that performance metrics are set so low as to make the bonuses de facto retention payments.
“The trustee plan needs to get its priorities straight and focus on returning customers’ money rather than rewarding the failed company’s executives,” Klobuchar said in her letter.
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The Biggest City Bankruptcy May Be Days Away
STOCKTON – The City Council on Tuesday is expected to take its first step toward filing for bankruptcy in a dramatic move to remedy Stockton’s crippling finances.
If bankruptcy ultimately happens, Stockton would be the nation’s largest city to fall into Chapter 9 protection.
While city administrators remained silent on any plans, it became an open secret Wednesday. The Downtown Stockton Alliance board of directors in a public meeting discussed the city’s bankruptcy timetable.
Also Wednesday, the San Joaquin and Calaveras counties Central Labor Council distributed an email, alerting its members that Stockton plans to begin the process at next week’s council meeting. The email also invites its members to a meeting Monday to map their strategy for opposing bankruptcy. They won’t be alone.
Councilman Dale Fritchen said he’s ready to mount an outright opposition because, he said, bankruptcy would cost the city millions in legal fees, drive down property values and discourage new businesses.
“I truly believe this is not the right path at this time for Stockton,” Fritchen said. “We’re starting to come out of the economic rut we’ve been in. We’re starting to see some light.”
Before successfully filing, city leaders must make a series of key moves.
They have to decide if they will engage the city’s major creditors in a 60-day mediation period required by a new, labor-backed California law that is designed to help cities dodge bankruptcy.
