August Bankruptcy Filings Increase Slightly

Total U.S. bankruptcy filings in August increased 7% from July according to Epiq Systems, Inc.'s data.  There were 104,336 bankruptcy filings in August, up from 97,104 in July.  Non-commercial bankruptcy filings also increased 7% from 92,562 in July to 99,417 in August.

August commercial filings totaled 4,919, which was an 8% increase from the 4,542 commercial filings in July.  Commercial Chapter 11 filings also increased 8% from 600 in July to 648 in August.

Even with the August increase, we are still on pace for the lowest total new bankruptcies in a year since the 2008 financial crisis.  The total August bankruptcy filings are a 14% decrease from the 120,905 filings in August of 2011.  Commercial filings this August represented a 24% decrease from the 6,434 commercial filings during August of 2011.

The August commercial Chapter 11 filings were a 9% decrease from the 710 filed during the same period last year.  Finally, the total non-commercial filings for this August were a 13% drop from the August 2011 total of 114,471 non-commercial filings.

The average nationwide per capita bankruptcy filing rate was 4.04 (total filings per 1,000 people) for January 1 through August 31 of this year.  This was unchanged from the first seven months of this year.  In August 2012 the average total filings per day was 3,366, which is a 14% decrease from the 3,900 total daily filings last August.

In 2011 1.46 million individuals and 36,000 businesses filed for bankruptcy, according to the American Bankruptcy Institute.  These levels are historically high, but individual bankruptcy filings have declined 8-10% over the last year.

If you are considering filing bankruptcy or are interested in more information about bankruptcy please contact me.  I offer a free initial consultation and I can help you file bankruptcy in Kansas or Missouri.  Please leave any questions or comments below.

Forgiven Mortgage Debt May Soon Be Subject To Taxes

Homeowners who reduce their mortgage debt may be taxed for that relief beginning the first of the year.  Since 2007 a special exemption has been in place to exempt as much as $2 million per household in principal reduction and other aid from banks.  This exemption is set to expire at the end of 2012.

This special exemption is set to expire along with many similar tax provisions, including President Bush's tax cuts, and the automatic government spending reductions.  The special exemption could disappear just as many homeowners are receiving large amounts of mortgage relief from the U.S.'s five largest banks as part of the national settlement of foreclosure abuse investigations.

Lawmakers are expected to push for an extension of the special tax exemption as Congress returns from summer break this week.  However, even though it has support from both parties, it is unlikely to be voted on before the Presidential election.  It will also be difficult to get it passed after the election because lawmakers will have many other issues to deal with, including the government spending restrictions set to expire at the end of the year.

Mortgage debt that is forgiven by a bank as part of a principal reduction, short sale or foreclosure, which is known as shadow income, must be reported as income by the homeowner and is subject to taxation.  The mortgage lender reports the forgiven amount on an Internal Revenue Service (IRS) form.

However, in 2007 Congress enacted the Mortgage Forgiveness Debt Relief Act to help struggling homeowners.  If the debt is forgiven because of a drop in a home's value or a decline in the owner's financial condition, up to $2 million of the relief for couples filing joint tax returns is exempted from federal taxes.

The exemption provides relief on tens or hundreds of thousands of dollars.  It was originally set to expire at the end of 2010.  However, with the housing market and overall economy crash in 2008, Congress extended the relief through the end of 2012.  The housing market is finally showing signs of recovery but this relief is still needed.

If you are struggling with your mortgage payments you may want to consider filing bankruptcy.  I can help you file bankruptcy in Kansas or Missouri.  Please contact me for a free initial consultation.  Any questions or comments are welcome below.

Everyone Should Have A Living Will And A Healthcare Power of Attorey

I recently published a blog post on the importance of having a will. On a related note, I feel that it is just as important to remind everyone that you should also have a healthcare power of attorney and a living will. Below I will explain in basic terms what the two documents are and why you should have them in place.

A healthcare power of attorney, also known as a durable power of attorney for health care decisions (or choices), allows you to appoint an individual to make healthcare decisions for you if you are unable to make or communicate your own wishes. It will also allow you to express your desire to be an organ and/or tissue donor if you choose to do so. You may also use this document to appoint a back-up individual(s) to make your healthcare decisions for you if the first individual cannot serve as your agent for any reason.

A living will declaration, also known as a healthcare choices directive, allows you to express your healthcare desires if you are unable to communicate them. This document is most commonly used to express your desire to not have your dying artificially prolonged. Specifically, it often states that if you have an incurable injury, disease, or illness certified to be a terminal condition by two (or one) physician(s) who have personally examined you, and the physicians have determined that your death will occur whether or not life-sustaining procedures are utilized and where the application of life-sustaining procedures would serve only to artificially prolong the dying process, you would direct that such procedures be withheld or withdrawn, and that you be permitted to die naturally with only the administration of medication or the performance of any medical procedure deemed necessary to provide you with comfort care. You may also direct that specifically listed treatments be withheld or withdrawn.

Everyone should have both a healthcare power of attorney and a living will in place. A healthcare power of attorney will allow you to appoint an individual or individuals to make your healthcare decisions for you if you are unable to do so and a living will allows you to express your wishes in written format.

I have significant experience in preparing both of these documents for individuals in Kansas and Missouri. I can prepare both of these documents for you at a low, flat fee and I offer a free initial consultation. Please leave any questions or comments below.

Everyone Needs A Will

I am aware that this blog is titled Kansas City Bankruptcy Attorney Blog, however there other legal topics of importance that I will discuss in this forum from time to time. I am always suprised to hear how many people have never had a will drafted, even if they have spouses and/or children. If you own a home, a car, or have a bank account you should have a will, especially if you have a spouse and/or children.

You may not know that if you do not have a will most of your assets will pass to your statutory heirs through a process known as "intestate succession". For example, in Kansas if you are married with children and do not have a will, half of your property will automatically pass to your spouse, while the other half will automatically be passed to your children. If you do not have a living spouse or living children, Kansas law would then pass the property to other more distant relatives.

If you do not have any heirs in Kansas, your property would revert to the state of Kansas. Additionally, if you live in Kansas and do not have a will, the Court will decide who administers your estate (also known as the executor or personal representative) and who would serve as the guardian of any minor children you may have at the time of your death. Even if you do have a will you will need to ensure that it provides for whom you desire to appoint as the guardian of your minor children if you were to pass away.

I have significant experience drafting wills and would be more than happy to meet with you for a free initial consultation. I can ensure that your assets go to who you want them to go to and that any minor children you may have are taken care of by your selected guardian(s). I am able to draft wills in both Kansas and Missouri. Even if you already have a will, I recommend it be reviewed if there have been changes in your family, finances, state of residence, or your intentions. Please leave any questions or comments below or on my contact form.

Can You Buy A Car Before Filing Bankruptcy?

Last week I posted about whether you can transfer a car title before filing bankruptcy. On a related note, many clients often inquire if they can purchase a new car before filing bankruptcy, thus incurring new debt right before filing bankruptcy. As a bankruptcy attorney I am prohibited from advising clients to incur new debt before filing bankruptcy. However, bankruptcy attorneys are allowed to help their clients with exemption planning to ensure that all potential bankruptcy exemptions are taken advantage of.

Specifically, Section 526(a)(4) of the bankruptcy code prohibits a debt relief agency (which includes bankruptcy attorneys) only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose. In my opinion, I would say that whether you can purchase a new car on the eve of filing bankruptcy depends on whether a new car is a necessity.

If an individual filing bankruptcy is purchasing a new car just prior to bankruptcy in order to obtain better credit terms or to ensure financing, I would suggest against it as the case may be dismissed or a discharge may not be granted. On the same note, I would not advise a client to purchase a new car and assume car payments in order to satisfy the means test to qualify for Chapter 7 bankruptcy.

However, if an individual filing bankruptcy does not have a car or their current car requires extensive repairs or is high-mileage, I would suggest that purchasing a new car shortly before filing bankruptcy would be acceptable if the car is a necessity for transportation to work and/or school, etc., which would be a "valid purpose" in my opinion.

Each individual's situation is unique. Therefore, I would suggest you consult with a bankruptcy attorney. I offer a free initial consultation and can help you file bankruptcy in Kansas or Missouri. Any questions or comments are welcome. Thanks for reading!

Can You Transfer A Car Title Before Filing Bankrupty?

As you may or may not know, each debtor is only entitled to exempt one vehicle when filing for bankruptcy. Therefore, many bankruptcy filers that own more than one vehicle per debtor inquire if they can transfer title to their vehicle to a non-debtor prior to filing bankruptcy. Is this a fradulent transfer of a non-exempt asset to a third party? Is this a fraudulent conversion of a non-exempt asset to an exempt asset? Or is this lawful pre-bankruptcy planning to maximize available exemptions?

The answer is, it depends where you are filing bankruptcy, who the bankruptcy trustee is, what the value of the vehicle is, and when the transfer is made. Bankruptcy law permits pre-bankruptcy planning to take advantage of exemptions. I would advise that in most situations, pre-bankruptcy planning to transfer the title of a car to another family member, especially if the primary driver of the vehicle is already a spouse or a child, is proper if fully disclosed prior to the 341 Meeting of Creditors.

However, every situation is different. I recommend that you consult with a bankruptcy attorney to discuss the details of your specific situation. I offer a free initial consultation and can help you file bankruptcy in Kansas or Missouri. Please leave any questions or comments below.

Some Student Loans Will Cost More Despite Deal

Despite the deal recently reached by Congress to contain the expense of higher education, college students are facing an approximately $20 billion increase in the cost of their federal student loans. Graduate students are now responsible for paying the interest on their federal student loans while they are in school and immediately after they graduate. Than means that they will pay an extra $18 billion out of pocket over the next decade.  Additionally, the government will no longer cover the interest on undergraduate loans during the six months after students graduate, which is expected to cost them more than $2 billion.

The above changes received little attention while lawmakers focused on preventing a spike in interest rates on federal student loans. They are the fallout of earlier political battles and compromises over broader issues such as the federal budget and the national debt ceiling. The recent debate about the nation's increasing student debt mostly focused on how to prevent the interest rate on new federally subsidized undergraduate loans from doubling to 6.8% on July 1st. Senate leaders did reach a comprise on how to pay the estimated $6 billion cost of freezing the rate for a year.

However, the above deal has been blunted by two changes that will saddle students with higher costs. Lawmakers ended a long-standing program that pays the interest on federally subsidized loans for six months after a student graduates from college. That change applies to new loans issued through July of 2014. Students who take out these loans over the next year will still receive the lower interest rate but that amount will be charged to their bill as soon as they graduate. Students who apply for federal loans next year will also see a higher interest rate beginning upon graduation.

Additionally, the goverment will no longer pay the interest on new graduate loans while students are in school and for six months after they finish. This change comes as government data shows that the average annual cost of a master's degree and professional programs in law and medicine has jumped by double digits as enrollment in graduate programs has risen by 33% since 2000 to 2.8 million students.

The graduate loan subsidy is a result of last summer's debate over the national debt ceiling. Lawmakers eliminated the program to cover a shortfall in funding loans for low-income students.

Student loans generally cannot be discharged in bankruptcy. However, if you are struggling to keep up with your student loan payments as a result of other debts then you may want to consider filing bankruptcy. Filing bankruptcy may discharge unsecured debts such as credit cards and medical bills, making your student loan payments more manageable. I can help you file bankruptcy in Kansas or Missouri and I offer a free initial consultation. I look forward to your questions or comments.

HARP Applications Increasing Under Looser Qualifications

A recent government report indicates that more homeowners who are "underwater," or owe more on their homes than they are worth, have been taking advantage of an expanded Home Affordable Refinance Program (HARP) to refinance their mortgages and obtain lower interest rates. Industry experts predict that the numbers will continue to increase since qualifications have been loosened.

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, issued its June report, which states that in the first quarter of 2012 180,000 mortgages were refinanced through what is known as HARP 2. That is nearly double the 93,000 HARP refinances in the fourth quarter of 2011 and the highest quarterly number since the HARP program began in 2009.

HARP was created by the federal government to help homeowners whose mortgages are owned or guaranteed by Fannie or Freddie and made before May 31, 2009 refinance into loans with better terms. The HARP program was expanded in the fall of 2011 with several modifications, which included the removal of certain fees and a second appraisal, and the extension of the deadline to December 31, 2013.

Addtionally, the cap was removed on the loan-to-value ratio. When the program began there was a ceiling of 125%, meaning that loans could not be underwater by more than 25%. Since the beginning of 2012, 4,400 loans with loan-to-value ratios greater than 125% were refinanced according to the Federal Housing Finance Agency report.

However, because of the boom in HARP 2 refinancing combined with other refinancing, due to historically low interest rates, some lenders have been facing large backlogs in applications. Therefore, underwater home owners will need to be patient with their lenders. Homeowners can supply much of the necessary information for refinancing through a secure website in addtion to personal interviews.

JPMorgan Chase has been focused on offering HARP refinancing to current customers who have mortgages serviced by the bank, as have been many other lenders. Borrowers can also contact any participating lender, though finding one that accepts HARP applications from new customers may be challenging. Chase has been mailing letters to customers who prequalified for HARP 2 refinancing. These letters offer borrowers reduced rates with no closing costs and closing in 30 days if homeowners can show verification of employment.

Under federal guidelines, HARP borrowers must be current on their monthly mortgage payments, though they may have had one late payment, provided it occurred at least six months before they applied to the HARP program. Homeowners with private mortgage insurance will generally be allowed to carry that over to the new refinanced HARP loan. However, borrowers with a second mortgage must get the lender of that loan to agree to the HARP refinancing.

If you are unable to obtain refinancing for your mortgage and are either currently behind on your mortgage payments or are facing foreclosure, please contact me for a free initial consultation. I can help you determine if bankruptcy is the right option for you. I can also help you file bankruptcy in Kansas or Missouri. I can also help you prevent foreclosure. Please leave any questions or comments below.

Biggest Banks Decrease Lending

The biggest banks in the U.S. are extending less credit and regional banks are stepping in to fill the gap. Total loans at the four largest U.S. banks, JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc., and Wells Fargo & Co., fell 4.9% to $3.04 trillion in the first quarter from the same period in 2010 according to Bloomberg. Lending by the 17 smallest of the 24 banks in the KBW Bank Index increased 9.8% to $1.27 trillion.

The big banks are trimming assets to satisfy stricter capital rules and regulatory demands to get rid of risky loans, while regional banks, most less than 1/10 the size of JPMorgan, are adding customers. That could mean lower earnings and profitability for the largest banks.

Citigroup, the nation's third-largest lender by assets, and Bank of America reported the biggest drops. Total loans at Citigroup fell 10% to $648 billion in the two year period, while those at BOA dropped 7.6% to $902.3 billion. Loans decreased 1.9% to $766.5 billion at Wells Fargo. JPMorgan, the largest U.S. bank, was the only big bank to show increase, which was a modest 1%.

These four banks held 41% of the $7.41 trillion in loans reported by the Federal Deposit Insurance Corp. (FDIC) at the end of the first quarter, compared with 43% as of the end of March 2010, when the total was $7.5 trillion. The four banks are facing a surcharge on top of capital requirements adopted last year by the Basel Committee on Banking Supervision that will be phased in by 2019. The need to hold more capital is leading some banks to reduce loans.

Fed officials recently cut their estimates for 2012 gross domestic product growth in the U.S. by 0.5%, noting that the rate means that demand is too weak to achieve full employment by 2014. In May payrolls climbed less than the most pessimistic forecast in a Bloomberg News survey and the unemployment rate rose from 8.1% to 8.2%.

Bank of America has sold more than $50 billion in assets to boost capital and simplify since 2010. BOA has scaled back in credit card and home lending, businesses that caused more than $50 billion in losses and impairments since the financial crisis, as it focuses on the most profitable customers and cuts assets that regulators deem risky. BOA's 8% decline in outstanding card loans to $112.6 billion in 2011 was the biggest among top U.S. issuers according to Nilson Report. It went from being the largest U.S. home lender after the 2008 takeover of Countrywide, with almost 25% of the market, to number 4 with 4.2% as of March 31st according to Inside Mortgage Finance.

Citigroup has sold more than 60 businesses and reduced assets by at least $600 billion since 2008. It posted a 10% decline in credit card lending in North America and reduced loans in Citi Holdings, a division created for unwanted assets including toxic mortgages, by more than half.

The largest banks have been cutting home equity and credit card loans since 2010. JPMorgan cut total consumer loans, which includes credit cards, mortgages, and auto lending, by 14% to $430.1 billion since the first quarter of 2010. Wells Fargo's consumer loans, including mortgage and credit cards, have fallen 7.8% to $420.8 billion in the same period.

This all has created an opportunity for regional banks, which have increased credit card and other consumer loans. U.S. Bancorp, Fifth Third Bancorp, and BB&T Corp. have boosted residential mortgage loans since the first quarter of 2010. US Bank, the 7th largest U.S. lender by assets, had $38.4 billion in mortgage loans at the end of the first quarter, 45% more than in 2010, while Fifth Third's portfolio rose 36% to $12.5 million. BB&T's residential mortgage loans rose 39% to $21.5 billion.

Wells Fargo, JPMorgan and Citigroup have all increased commercial and corporate lending. Wells Fargo had $345.7 billion in commercial loans at the end of the first quarter, which was 16% higher than in the first quarter of 2010. Citigroup's corporate loans rose 42% to $228 billion during that time.

The biggest lenders are focusing on large transactions because they provide higher returns for the amount of effort. Corporate clients are now also more open to switching banks or adding a regional lender. Regional banks also increased lending through consolidation. Capital One, which is the 6th largest U.S. bank by deposits, has spent more than $28 billion on acquisitions since 2005. Its total loans have jumped 33% since the first quarter of 2010.

Regional and community banks are expanding total loans because their customers, including small businesses, are borrowing. The small businesses are more in need of loans right now. They do not have large stashes of cash. The large corporations are sitting on their money or are not borrowing.

Investors are also valuing regional lenders more than the four largest banks. The 17 smallest KBW Bank Index lenders had an average price-to-tangible-book value of 1.5 at the end of the first quarter, compared to a 1.2 average for the four biggest banks, according to Bloomberg data. BOA and Citigroup shares are both trading below tangible book, a measure of what investors are willing to pay for a firm's equity after removing intangible items such as goodwill and brnad names that would have little value if the company went out of business.

If you or your business are having trouble obtaining financing or are unable to keep up with your loans problems you may want to explore the option of filing bankruptcy. Filing bankruptcy can free up your payments to unsecured creditors for other needs and it can discharge your unsecured loans. If you are considering filing bankruptcy in Kansas or Missouri please call or email me to schedule your free initial consultation. Please leave any questions or comments below.

Debit Cards and College Students

Schools are now commonly contracting with banks to disburse financial aid money to students. In 2008 Congress finally barred student lenders from offering school kickbacks to steer student business their way. Then in 2009 Congress required credit card companies marketing to young people, and often paying schools or alumni associations for access, to ensure that applicants had the means to pay before issuing cards. However, debit cards have received far less federal oversight.

According to a study by the United States Public Interest Research Group Education Fund nearly 900 colleges and universities have card relationships with banks or other financial institutions, some of which manage student aid disbursements by turning students IDs into debit cards. Some of the schools save money by outsourcing administrative costs and others receive payments from the banks.

Lawmakers are now trying to get answers about these practices. Citing the study, Democratic Senators Richard Durbin and Jack Reed and Democratic Representative Peter Welch sent letters to 15 financial institutions asking each to provide information on campus card fees. Senator Durbin and Representative George Miller have asked the inspector general of the Department of Education to determine whether the arrangement hurt students or violate federal regulations. They criticized the banks for what they described as "aggresive and misleading marketing" to students and for charging hidden fees that could lead students to quickly deplete their aid accounts.

The study noted some fees charged by the biggest player in the field, Higher One, which has contracts with 520 campuses. Student account holders are charged $29 the first time they overdraw and $38 after that. They are also charged 50 cents for making a debit card purchase with a PIN and $2.50 for using another bank's ATM to withdraw cash.

According to the study, some students mistakenly believe that they must keep their aid money with the issuing bank. The study says that other students believe they have to wait longer for funds if they want them disbursed through their own banks. It says that some of the banking arrangements may benefit students but it points out the lack of transparency in the contracts between colleges and the banks.

Unfortunately, high banking fees are all too common these days for consumers. However, school administrators should be doing more to protect students. Lower fees for the students should be a higher priority before signing a deal with a bank for campus access. Otherwise regulators and Congress will need to step in again.

On a somewhat related topic, if you are struggling with credit card debt you may want to consider filing bankruptcy. Filing a Chapter 7 bankruptcy can discharge all unsecured credit card debt. I can help you file Chapter 7 bankruptcy in Kansas or Missouri. Please call or email me to schedule a free initial consultation where I can discuss your options. Comments or questions are welcome.

Weak Job Market Hinders U.S. Economy

The weak job market is weighing on the U.S. economy three years after the "Great Recession" supposedly ended and the signs suggest that hiring may not increase any time soon. The number of people applying for unemployment benefits over the past month has reached a six month high according to the government. The increase suggests that layoffs are rising and that June was another slow month for hiring.

Sales of previously occupied homes also fell in May. The Federal Reserve recently issued a pessimistic report which caused a sharp decline in stock prices. Applications for unemployment benefits recently dipped from 389,000 to 387,000 according to the Labor Department. However, the four week average, which is a less volatile measure, rose to 386,250, which is the highest level since December. When applications for unemployments benefits top 375,000 hiring is generally too weak to rapidly lower the unemployment level.

Home sales also fell 1.5% in May from April to a seasonally adjusted rate of 4.55 million according to the National Association of Realtors. Sales are up 9.6% from a year ago, which suggests that the housing market is slowly improving. However, the annual sales rate is far below the 6 million that economists consider healthy.

One of the few positive signs is that a gauge of future U.S. economic activity rose in May to its highest level in four years. The Conference Board's index of leading economic indicators increased to 95.8, which is the highest level since June of 2008, which was six months into the recession. However, before the recession the index routinely topped 100.

The mostly negative news came after the Fed downgraded its outlook for growth and took another step to try and pump up the economy. The Fed now expects growth of only 1.9% to 2.4% for the year. That is 0.5% lower than its previous estimate. The Fed also thinks the unemployment rate, now at 8.2%, will not fall much further this year.

To try and boost growth and hiring the Fed said it would extend a program intended to drive down long-term U.S. interest rates, which it hopes will encourage more borrowing and spending. Hiring slowed signficantly in April and May, raising concerns about the strength of the recovery. Employers have added an average of only 73,000 jobs a month in April and May. That is much lower than the average of 226,000 added in the first three months of the year.

Some economists have warned that the weaker job market may have started to affect home sales, which until recently had been showing modest improvement. Purchases made by first time homebuyers, who are essential to a housing recovery, dropped in May. Sales also fell in every region except for right here in the Midwest.

A positive note from the report is that the supply of homes for sale remains low. The inventory of unsold homes in May was just 2.49 million, roughly the same as in April. It would only take about six months to exhaust the supply at the current sales pace. The supply has not been this low relative to the pace of home sales since 2006. A low home supply usually encourages more people to put homes up for sale, which generally improves the overall quality of the homes on the market, in turn driving prices higher.

Regardless of the drops in the survey, companies insist they are more optimistic about business conditions in the six months. A gauge of future expectations rose to 19.5 in June from 15 in the previous month.

If your finances have taken a blow due to the economy you may want to consider the option of filing bankruptcy. I can help you file bankruptcy in Kansas or Missouri. I also offer a free initial consultation. Any questions or comments are also welcome.

Unemployment Benefits Have Slightly Declined

The number of Americans filing new unemployment benefit claims only declined slightly, suggesting that the labor market is still struggling. Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted number of 387,000 according to the Labor Department. The four week moving average for new claims, which is considered a better measure of labor market trends, increased 3,500 to 386,250, which is the highest level since early December.

The weakness in the labor market prompted the Federal Reserve to further ease monetary policy by extending a program to re-weight bonds it already holds toward longer maturities to hold down borrowing costs. Much of the recent weakness in the job market has been caused by a decline in hiring, as opposed to increased layoffs. New applications for unemployment benefits have barely moved since April.

The number of people still receiving benefits under regular state programs after an initial week of aid was unchanged at 3.3 million in June. The number of people on extended benefits fell 25,638 to 110,864 in June, as more states lost eligibility for extended benefits for the long-term unemployed.

Economists predict that as more people fall off the unemployment benefits rolls, that will push down the jobless rate as they are forced to take jobs they would not normally have considered or that they will drop out of the labor force. A total of 5.83 million people were claiming unemployment benefits in June under all programs, down 1,164 from the previous week.

If you are unemployed and cannot keep up with your bills you may want to consider filing bankruptcy. Filing Chapter 7 bankruptcy can discharge your credit cards and medical bills. If you would like more information about filing bankruptcy in Kansas or Missouri please call or email me to schedule your free initial consultation. You are also welcome to leave any questions or comments below.

U.S. Wealth Fell 38.8% in 2007-2010

A Federal Reserve study showed that the financial crisis wiped out 18 years of gains for the median U.S. household net worth, with a 38.8% drop from 2007-2010 primarily due to the collapse in home prices. Median net worth dropped to $77,300 in 2010, which was the lowest since 1992. It was $126,400 in 2007.

Mean net worth fell 14.7% to a nine year low of $498,800 from $584,600, according to the Fed. Almost every demographic group experienced losses. Fed economists said this could hurt retirement prospects for middle-class families.  The drops in household wealth during one of the longest and deepest recessions since the Great Depression has slowed consumer spending, which makes up about 70% of the economy.

The Fed has already taken unprecedented steps to boost the economy as it has battled the 18 month recession, which statistically ended in June of 2009. The Fed cut its key interest rate to nearly zero and purchased $2.3 trillion in debt to lower long-term borrowing costs.  Still, the unemployment rate has stayed above 8% since February of 2009, compared with the Fed's long-range goal of 4.9%-6%.

The Fed economists wrote, "although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices." The S&P/Case-Shiller U.S. Home Price Index fell 23% in the three years through December of 2010. The Standard & Poor's 500 Index also lost 14% during that time period.

The proportion of families with retirement accounts decreased 2.6 points to 50.4% during that period, wiping out most of the 3.1% increase over the prior three years, according to the report. The Fed economists noted, "the most noticeable drops in ownership were among families in the middle-income, middle-wealth, and middle-age groups. Retirement accounts had been growing in importance as a supplement to Social Security and other types of retirement income, and the decrease in ownership in the past three years may represent a setback."

The U.S. did add 69,000 jobs in May. However, the economy grew more slowly in the first quarter than previously estimated, expanding at a 1.9% annual rate, down from the prior 2.2% estimate. Declines in average income were the greatest in the wealthiest 10% of families and for higher education or wealth groups according to the survey.

The housing slump and financial crisis also boosted the dependence on wages as a percentile of net worth for the wealthiest 10%. The top 10% by wealth got 55.8% of their pre-tax family income from wages in 2010, up from 46.2% in 2007, according to the survey. The portion earned from capital gains fell from 14.4% to 2.3%.

Debt as a share of family assets rose to 16.4% from 14.8% as asset values declined, according to the Fed. For those households with zero debt in 2010, the median value of debt was unchanged from 2007, while the share of families having debt fell to about 75% from 77%. Debt payments more than 60 days overdue were reported by 10.8% of families in 2010, up from 7.1% in the last survey in 2007.

The Fed said, "measures of debt payments relative to income might have been expected to increase. In fact, total payments relative to total income increased only slightly, and the median of payments relative to income among families with debt fell after having risen between 2004 and 2007. The share of families with high payments relative to their incomes also fell after rising substantially between 2001 and 2007."

If you are struggling with debt and are unable to keep up with all of your payments you may want to consider filing bankruptcy. I can help you file bankruptcy in Kansas or Missouri. I offer a free initial consultation to help you determine if bankruptcy is the right option for you. Feel free to leave me any questions or comments you may have.

Home Equity is Increasing

In the first quarter of 2012 home equity rose to $6.7 trillion, its highest level since 2008, as homeowners are taking advantage of record low interest rates to refinance their loans and pay down principal. The 7.3% gain was the biggest jump in over 60 years according to Bloomberg's analysis of Federal Reserve data.

This appears to be the strongest sign yet that Americans' home loan debt burden is easing after the record borrowing that created, and later broke, the housing bubble, which left nearly 1/4 of homeowners underwater in their mortgages. Half of the mortgages refinanced in the fourth quarter of 2011 reduced loan size, which was a record according to Freddie Mac.

Homeowner equity was 41% of the share of U.S. residential property value in the first quarter of 2012, including homeowners who do not have mortgages, according to the Fed study. The share has not been that high since the third quarter of 2008, when it was 43%.

Residential mortgage debt peaked in 2007 at $10.6 trillion, which had doubled in six years, according to the Fed data. Since then it has fallen 7% and the value of all residential property has dropped 23%.

U.S. homeowers are not only bringing money to the table when refinancing their mortgages, many are also choosing to shorten their loan terms, which increases monthly payments. The average mortgage term dropped to 27 years in March and April, down from 29 years in February.  Nearly all U.S. mortgages have either 15 or 30 year terms. When the average falls it shows that more people are choosing 15 year mortgages. Refinancing applications are also at a three year high.

Home prices have dropped for six straight months through March to the lowest level in a decade, which is 35% below the peak prices during the housing boom according to the S&P/Chase-Shiller price index of 20 U.S. metropolitan areas. However, a 3.4% increase in home sales in May may signal that prices are beginning to stabilize.

According to the median forecast of 93 economists surveyed by Bloomberg, the U.S. economy probably will grow at a 2.2% pace in 2012, which is the third year after the recession. That compares to a 3.9% average expansion rate in the third year following the 1982, 1994, and 2001 recessions In 2013 the growth rate will probably be 2.4% according to theeconomists surveyed by Bloomberg.

Currently approximately 23% of mortgage holders are underwater on their loans, meaning they owe more than their homes are worth, according to CoreLogic Inc. Approximately 2.1 million properties were in foreclosure in April, according to Lender Processing Services.

Retail sales in the U.S. fell in May for a second straight month, prompting economists to cut forecasts for economic growth as limited job growth and income gains hold back customers. The 0.2% decrease matched April's drop that was previously reported as a gain, according to Commerce Department figures.

Annual increases in national income slowed from $693 billion in 2010 to $581 billion in 2011, according to the Bureau of Economic Analysis. The first quarter of 2012's gain of $127.7 billion puts 2012 on pace for a $510.8 billion increase, which is the lowest since income dropped in 2009.

If you are struggling to keep up with your mortgage payments you may want to consider filing bankruptcy. Filing Chapter 7 bankruptcy can allow you to keep your home if you are current on your mortgage payments. Filing Chapter 13 bankruptcy can allow you remain in your home and catch up on your mortgage payments if you are currently behind on your mortgage payments. Filing bankruptcy can also stop the foreclosure process. If you are consider filing for bankruptcy in Kansas or Missouri I offer a free initial consultation to discuss your options. Any questions or comments are welcome below.

Overdraft Fees Rising

Overdraft fees for checking accounts have risen during the past two years, despite efforts by regulators to stop the aggressive practices by banks. The basic overdraft fee of $35 has not changed in the last two years, but banks have imposed other harsh penalties on consumers for minor lapses, according to recent reports by two non-profit groups.

The Pew Health Group, a research organization, called for the new Consumer Financial Protection Bureau (CFPB) to push banks to be more upfront about these bank fees. Another recent report by the Consumer Federal of America, an advocacy group, expressed similar concerns and urged consumers to inform the CFPB of high overdraft fees.

In 2009 the Federal Reserve required banks to tell customers about overdraft penalties, but the disclosure statements were often unclear and difficult for consumers to follow according to the two reports. In 2010 the Fed also prohibited banks from imposing overdraft charges unless a customer had signed up for the service. Anoter regulation imposed limits on the number of times customers can be charged overdraft fees.

The banks claim that the increases are due to federal legislation last year that reduced bank income from debit-card transactions. Also a 2010 survey showed that 77% of customers did not pay overdraft fees. That figure rose to 84% in 2011 according to the American Bankers Association. A majority of customers that did pay the fees say it was worth the protection they received for overdrawing their accounts. The American Bankers Association also notes that customers receive multiple notices about overdraft policies, including in their monthly statements.

Most banks offer two kinds of overdraft plans. While neither is required of customers, the reports say banks encourage customers to sign up. In an overdraft penalty plan, the bank pays the amount that was overdrawn by the customer in exchange for a fee. In an overdraft transfer plan, the customer can link to another account that will transfer the money, also for a fee.

Most banks also specify a minimum overdraft amount before they impose penalties. If overdraft amounts are not repaid within a certain time frame, banks can charge extended overdraft penalty fees. The Pew report said that there has been a 32% increase in this type of fee since 2010. The CFA alleges that bank overdraft loans are a form of payday lending where banks charge staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated.

Overdrawn bank accounts that are unsecured may be discharged in a Chapter 7 banruptcy. If you are overwhelmed with debt you may want to consider filing bankruptcy. I can represent you in filing bankruptcy in Kansas or Missouri and I offer a free initial consultation to determine if bankruptcy is the best option for you. Please leave any questions or comments below.

Students Paying Outrageous Rates for Private Loans

Private student loan interest rates can be as high as credit card rates. For example, J.P. Morgan Chase & Co. charges as much as 10.25% annual interest on student loans. Unlike the federal student loan program, which allows consumers to borrow at fixed rates directly from the government, these loans from at least 30 banks and other private lenders are mostly variable interest rates that can be more than double what people pay in the government program.

With college costs increasing, the marketing and interest rates of these private student loans are drawing increased complaints from borrowers and regulators, who say that the primarily teenage consumers do not understand the loan terms. Loans from banks and other private lenders make up approximately 15% of the $1 trillion in outstanding student debt, according to an estimate from FinAid.org, a website about college grants and loans.

About 2.9 million students have private loans according to the most recent federal data. With college costs continuing to soar, companies such as Discover and SLM (also known as Sallie Mae) are both working to expand their student loan businesses. However, in April JPMorgan, the largest U.S. lender by assets, said it would stop offering student loans as of July 1st except to bank customers.

To pay for college students typically rely on fixed-rate goverment-backed loans. These loans currently carry interest rates from 3.4% to 6.8% but are capped at $31,000 for a dependent student's undergraduate career. Parents can also take out federal loans at 7.9% up to the cost of attendance less any financial aid.

Private loans are often used to bridge the gap between the cost of college and what a student can take out in federal loans. However, private loans do not offer students the same protections as federal loans, such as income-based repayment plans and deferment. Private loans also are not guaranteed by the government. Private loans can carry higher interest rates because students often do not have a credit history.

At the same time lenders are charging students high interest rates, banks such as JPMorgan have been able to borrow from the U.S. Federal Reserve at close to 0% since December of 2008. The central bank, whose target for overnight interbank lending is 0% to 0.25%, has said economic conditions will probably warrant keeping it low through at least 2014.

A significant amount of the outstanding private student loan debt was amassed before 2008 when credit standards were not as strict and lenders targeted the education market through direct marketing to students. Private student loans peaked at $22 billion in the 2007-2008 school year, according to The College Board. At that time approximately 14% of undergraduates took out private loans according to a 2010 report from the U.S. Goverment Accountability Office. Annual lending dropped to about $6 billion in 2010-2011 as lending standards tightened and federal loan limits increased.

More than two thirds of borrowers with private loans who took part in an online survey said they did not understand the main differences between private and government loans. A bill introduced in the Senate in March would require colleges to counsel students about taking out the maximum in federal loans before venturing into the private market.

Sallie Mae has said it will adjust the terms of private loans for certain customers when it determines the changes may increase a customer's ability to make payments. Options can include reduced payment plans, lower rates or extended terms and temporary suspension of the requirement to make payments.

Students are relying more on student loans as the cost of tuition rises faster than the pace of inflation. Average tuition and fees to attend a public, four-year college were $8,244 last year, almost triple the 1995-1996 cost of $2,811. At private schools they have more than doubled to $28,500 from $12,216, according to data from The College Board. The figures exclude room, board and other costs.

Sallie Mae says it is trying to increase its lending to students. The company's private loan portfolio was $37 billion in the first quarter, which was about the same as in 2009. The company said in April that it expects to write about $3.2 billion in private loans this year, which is down from $7.92 billion in 2007.

Currently 88% of Sallie Mae's outstanding private loans carry rates below 10%, while half are at less than 6.75%. Sallie Mae says it works with customers to help them navigate the loan process, advising that rates are disclosed multiple times during the application process and by offering rate reductions to customers who make small payments while in school. In May Sallie Mae said that it planned to offer its first fixed-rate student loans, with interest rates ranging from 5.75% to 12.875%.

Discover bought Citigroup Inc.'s private student lending business in 2010 and $4.2 billion of the bank's private student loans. It purchased an additional $2.5 billion of loans in 2011. In May Discover said it would offer a fixed-rate, private student loan with interest rates from 6.79% to 9.99%, depending on the borrower's creditworthiness and if there is a co-signer.

As a reminder, student loans generally cannot be discharged in bankruptcy. Therefore, if you are considering taking out student loans I would encourage you to first exhaust your federal student loan options before considering a private student loan. Also, please be sure to carefully review the interest rate and repayment terms. If you are having trouble paying your other bills due to student loans, you may want to consider filing bankruptcy to eliminate other unsecured debts, which would free up cash to timely repay your student loans. I can help you file bankruptcy in Kansas or Missouri and I offer a free initial consultation. I welcome any questions or comments.

Bankrutpcy Filings Continue to Decrease

U.S. bankruptcy filings decreased 11% in May of 2012 compared to May of 2011, according to data provided by Epiq Systems Inc. May 2012 bankruptcy filings totaled 109,392, as compared to 122,836 in May 2011.

Commercial bankruptcy filings in May of 2012 were 5,259, which is a 21% decrease from the 6,631 commercial bankruptcy filings during the same period in 2011. There were 104,133 non-commercial filings this May, which was a 10% drop from the May 2011 non-commercial filing total of 116,205.

The drop in bankruptcy filings appears to indicate that households have reduced their spending and businesses are taking advantage of the low interest rates. I would anticipate a continued decrease in bankruptcy filings.

The total commercial Chapter 11 bankruptcy filings also dropped this May to 682. This is an 8% decrease from May 2011's total of 722. However, this a 3% increase over the April 2012 total of 660.

Overall bankruptcy filings in May of 2012 increased slightly from April of 2011. Total filings increased 0.4% from the April total of 108,908. Commercial filings increased 2% in May from the April total of 5,170. Non-commercial filings increased 0.4% from the April total of 103,738.

The average national per capita bankruptcy filing rate for the first five months of 2012 increased to 4.13 total filings per 1,000 people from 4.10 per capita for the first four months of 2012. The average total bankruptcy filings per day in May 2012 was 3,529, which was an 11% decrease from 3,962 bankruptcy filings per day in May of 2011.

If you are considering filing bankruptcy in Kansas or Missouri please contact me for a free consultation. I would also appreciate any questions or comments below.

Freddi Mac Has Lowered Modification Interest Rate

As of July 1st, Freddie Mac announced that its Standard Modification interest rate has come down from 5% to 4.625%. The Standard Modification is for borrowers who do not qualify for the government's HAMP program (Home Affordable Modification Program).
The modification makes payments more affordable by lowering a borrower's principal and interest payments by at least 10%. The Standard Modification and HAMP both include a trial period to ensure borrowers can maintain modified mortgage payments.

Freddie Mac may adjust the interest rate for Standard Modifications based on market conditions. The Freddie Mac Standard Modification is part of the Servicing Allignment Initiative, which is an effort to increase consistency in how delinquent loans are serviced.

If you are facing foreclosure in Kansas or Missouri mortgage modification may be available to you. If you are not eligible for modification there are other defenses to foreclosure and filing bankruptcy may be able to prevent foreclosure. I offer a free initial consultation if you would like to speak with me about your options. I would also welcome any comments or questions below.

College Dropout Loan Debt

A new problem that has arisen is an increase in the number of people with college debt but no degree to show for it, with student debt now topping $1 billion. Nearly 30% of college students who took out loans dropped out. Fewer than 25% of students did so ten years ago, according to Education Sector. 

College dropouts are also the most likely to default on their loans, falling behind four times more often than graduates. Obama's administration is trying to address the issue by coupling its goal of ensuring that high school students are prepared for at least one year of higher education with new targets for college graduation rates.

The poor economy has forced more students to decide between the benefits of a degree and the burden of paying for it. More students are now taking on jobs or taking a reduced course load to save money, which also increases the likelihood that they will not graduate. In a 2009 study, half of college dropouts said that work was a major factor in their decision. Only one fourth said they had spent too much time socializing.

Although college dropouts make more than those with only a high school diploma, they earn about a million dollars less than college graduates over their careers. College enrollment has increased by 38% in the past decade to more than 20 million, according to government data.

However, lawmakers and regulators have recently shown more concern over the growing market of for-profit institutions with low graduation rates and high student debt. FinAid.org reports that students who receive a bachelor's degree from a for-profit college will have an average debt of over $41,000. Students graduating from a public university have roughly half that amount of debt. For-profit colleges also saw the biggest increase in borrowers who drop out.

The Education Trust found that more than half of students who take out loans to enroll in two-year for-profit colleges never finish. At traditional non-profit and public colleges, only approximately 20% of students with loans who started college in 2003 dropped out within six years. By comparison, about 8% of Americans between ages 16 and 24 do not have a high school diploma.

The Obama administration has made increasing the college graduation rate by 2020 one of its top educational priorities. Some schools have also tried to streamline majors and course offerings to help students stay on track. Education experts say many students aren't prepared for the more rigorous course work in college and that many schools don't offer enough guidance for these students.

As a reminder, student loans are generally not dischargeable in bankruptcy. However, if you are struggling with student loan debt, bankruptcy may be an option worth considering. Filing bankruptcy may allow you to eliminate many of your other debts, freeing up money to repay your student loans. Please feel free to leave any comments or questions.

Longer Unemployment Benefits Are Winding Down

Many out of work Americans are getting their last unemployment checks sooner than expected, even though Congress renewed extended unemployment benefits through the end of 2012. The checks are stopping for the long-term unemployed.  More than 5 million people have been out of work for more than 6 months.

Federal unemployment benefit extensions, which supplemented state payments for up to 99 weeks, were just intended to continue until the job market improved. Congress renewed the program in February when it was set to expire, but also phased in a reduction of the number of weeks of extended aid and made it more difficult for states to qualify for the maximum aid. Since then people in 23 states have lost up to 5 months worth of benefits.

This month an additional 70,000 people will lose benefits earlier than expected, increasing the number of those cut off prematurely this year to nearly 500,000 according to the National Employment Law Project. That does not include those who exhausted the weeks of benefits they were entitled to.

Some states are also making it harder to qualify for the first few months of benefits, which are covered by taxes on employers. In Congress, Republicans say the unemployment benefits extension prolongs joblessness and has not kept unemployment rates down, while Democrats say those out of work have few alternatives and that the payments are one of the most effective forms of stimulus since most of it is immediately spent.

The benefits expiration is contributing to what economists refer to as a "fiscal cliff", or a drag on the economy at the end of this year when tax cuts and recession-related spending measures will end unless Congress acts. The Congressional Budget Office has warned that the combination could contribute to another recession next year.

Unemployment is lower than it was when the emergency unemployment extensions were put into action in November 2009. It is down to 8.1% from 9.9% then. However, it is still far higher than pre-recession norms and there are more than 3 job seekers for every opening.

Supporters of the extended benefits says the cuts are premature, while conservative economists and political leaders argue that unemployment benefits prolong joblessness and transfer wealth from one area of the economy to another without contributing to growth.

Most states offer 26 weeks of unemployment benefits, plus the federal extensions. The number of extra weeks in each state is determined by several factors, including the state's unemployment rate and whether it is higher than three years earlier.

Some states have also tightened eligibility. Most people nationwide can apply for benefits by phone. Nationally, 30% of applicants are rejected according to the National Employment Law Project. If you are unemployed and are unable to keep up with your debts, you may want to consider filing bankruptcy. I can help you file bankruptcy in Kansas or Missouri. I welcome any questions or comments you may have.

Most Americans OK With Overspending

A new survey from COUNTRY Financial shows that most Americans spend more than they make, at least occasionally, but they are mostly okay with that. The May 2012 COUNTRY Financial Security Index concluded that 52% of respondents spent in excess of their monthly income at least a couple of months each year, but only 9% said their lifestyle is more than they can afford. If you are spending more than you make on a regular basis and find that you cannot afford it, you may want to talk to me about your options, such as filing bankruptcy in Kansas City.

The survey did find that 51% of respondents have a household budget in place. However, many appear to have a difficult time following it every month. Budget shortfalls occurred at least 6 months out of every year for 21% of respondents in the survey. I would suggest that because most families have a budget, they do not see their overspending as a problem.



Those surveyed compensated for the excess expenses with a variety of things. 36.2% used money from a savings account and 21.7% used a credit card. Additionally, 12.3% delayed bill payments and 7.8% borrowed money. It is also noteworthy that of the 21% of survey respondents who reported regularly having monthly expenses in excess of their income, only 13.5% adjusted their spending the next month to get back on track.

Lots of Americans also say that they are not meeting their savings goals. According to the survey, 61% of budgeters and 30% of non-budgeters create a monthly savings goal. However, of those with a savings goal, 57% of budgeters and 54% of non-budgeters say they meet their goals 50% of the time or less. I would suggest moving savings funds to a less accessible, but still liquid, account. For example, you may want to consider a money market account with limited check writing availability. Please feel free to leave your comments or questions.

New Homes Sales Are On The Rise

New home sales are picking up steam. This may be another sign that the housing market is finally recovering. New home sales in April rose 3.3% from March and were up 9.9% from a year earlier, to a seasonally adjusted rate of 343,000 according to the Commerce Department.

However, we are still far below historic levels. Since 1963, the average new single-family homes sold per year in the U.S. has been 671,000. New homes account for about 10% of the houses sold each year. 

Sales of previously owned homes have also risen lately, suggesting gains throughout the housing industry. The National Association of Realtors said that sales of previously owned homes rose 3.4% in April from March. This includes sales of multi-family dwellings, such as condominiums and duplexes. The Commerce Department figures only include single-family homes.

Housing prices are also rising. The median new home price in April was $235,700, which is nearly 5% higher than a year earlier. With all of this news, some economists are becoming more encouraged about the housing market. However, some economists and analyists had expected even stronger new home sales based on the double-digit order increases in recent months by large publicly-traded home builders.

Toll Brothers, Inc., which is a luxury builder, said that its contracts for the quarter ending April 30th were up 47% from last year. The National Association of Home Builders also reported that confidence among home builders hit a five year high in May.

It is important to note that the housing recovery could quickly revert if the economy goes back down, interest rates rise or inventory swells as banks seek to sell more foreclosed properties. If you are facing foreclosure I may be able to help you save your home and stop the foreclosure process through bankruptcy or other means.

146,000 new homes were listed for sale at the end of April, a supply that would take over 5 months to deplete at the current sales pace. Only 46,000 new homes were completed in April, a record low. However, decreasing inventories could increase future new home building. Home prices also rose 1.8% in March, on a seasonally-adjusted basis, compared to the previous month. As always, questions or comments are welcome.

More Disclosures Needed in Student Loans

For many, obtaining a college degree, which should lead to higher income and more opportunities, also often means years of paying off student loan debt. Schools should be forced to do more to educate students about the cost of their education and the student loan process.

In the U.S. approximately two thirds of Bachelor's degree recipients receive student loans from public or private lenders. In the early 1990's only about 45% of graduates borrowed money from any source, including family. The average debt for student borrowers last year was approximately $23,300, 10% of student borrowers owed more than $54,000 and 3% owed more than $100,000.

Federal law requires schools to provide basic "entry" and "exit" loan counseling. However, many schools market themselves to students without explaining the actual cost of attendance. Additionally, financial aid letters often blur the distinction between loans and grants, making the school look like a better deal than it really is. Also, once students are enrolled they are generally not receiving any counseling during the years they are enrolled, while still borrowing money every year.



President Obama's administration has proposed rquiring colleges to clearly disclose costs in a standardized "shopping sheet" that would allow students to see the aid they are receiving and the debt that they would incur. Later in the year the administration plans to post an internet "scorecard" that rates each college nationally on affordability and value, which are defined by graduation rates and whether graduates earn enough on average to repay their debts.

Additionally, a pending bill in the Senate would require colleges and lenders to educate students about the differences between federal loans and riskier, pricier private loans, and their borrowing choices. However, I think there is always more than can be done to help students and potential students to truly understand how much college is going to cost and how much debt they are going to have after graduation, including how long it will take them to pay it off. As a reminder, student loans are generally not dischargeable in bankruptcy. Please leave any questions or comments you may have.

New Rules for Prepaid Debit Cards

Prepaid debit cards are very popular depsite the fact that they are largely unregulated and often charge high fees with little disclosure. As new rules have targeted credit cards and traditional debit cards, many banks have increased their presence in the prepaid debit card market.

Today the Consumer Financial Protection Bureau introduced a preliminary rule for prepaid products, the first ever. Most fees on these cards will not be regulated, such an average $5 monthly maintenance fee. However, the rule will require companies to reimburse consumers for unauthorized charges.

Card providers argue that they offer a competitive price and help consumers control their spending. Some regulators and consumer advocates are concerned that companies are leading low-income consumers into a relatively expensive product as opposed to simple checking accounts. In 2009 borrowers had approximately $29 billion worth of prepaid debit cards. By 2013 that number is expected to rise to $90 billion.

Big banks, who are looking for new customers, are joining the prepaid debit card market. In March, Wells Fargo introduced a reloadable prepaid card. Regions Financial also unvailed a prepaid card targeted at borrowers who typically do not have a traditional bank account. JP Morgan also announced earlier this month that it would start offering prepaid cards. The card is called "Liquid" and carries a $4.95 monthly maintenance fee but does not charge consumers to add money to the card.

The banks have recently become drawn to prepaid debit cards because they were not included in the Dodd-Frank regulatory law and other recent crackdowns on debit and credit card fees. The Dodd-Frank law exempted prepaid cards, allowing banks to impose high fees on merchants when consumers make a purchase with a prepaid card.

Advocacy groups have also questioned if card issuers clearly explain to cardholders the fees associated with the prepaid cards, including activation charges, and charges for loading money onto the card, checking the card balance at ATMs and for calling customer service. For example, Wells Fargo charges $3 for customers to withdraw money using a bank teller and $5 to replace a lost card.

A study conducted also concluded that some customers were unaware that their prepaid cards are not necessarily protected by the FDIC (Federal Deposit Insurance Corporation). The Bureau's new proposal does not address this issue. However, the Bureau is seeking to apply Federal Regulation E, which applies to debit and gift cards, to prepaid cards. Regluation E requires companies to reimburse customers for unauthorized transactions that occur when a prepaid card is lost or stolen.

As a reminder, you may discharge credit card debt in bankruptcy. I look forward to your questions and comments.

Almost 1/3 of Student Loan Debt is now from Grad School

Graduate school, which generally leads to higher income, is increasingly leaving students with higher debt. As discussed in a previous post, Congress is attempting to keep student loan interest rates at lower levels. However, little attention is being paid to graduate students. Student loan debt in the U.S. now tops $1 trillion and graduate students account for approximately 1/3 of that sum, which is likely to grow.

Beginning in July, subsidized Stafford loans will no longer be available to graduate students. This likely will force graduate students into more expensive loans to pay for tuition. Currently, subsidized Stafford loans are the most popular student loans. More than 1/3 of students sign up for them annually because the government covers the interest payments while students are still enrolled. Other loans charge students the interest while they are still in school.

Without the subsidized Stafford loans, experts say that graduate students will likely soon account for a larger share of student loan debt. It is estimated that the student loan debt load at graduation will increase by about 6% on average.

The cuts are part of the federal goverment's move to slash spending across the board. Last year President Obama signed the Budget Control Act of 2011, which eliminated the subsidized Stafford loan for graduate degrees. This was expected to save around $21.6 billion over 10 years, with nearly $5 billion going to the deficit reduction. The adminstration says they removed the subsidized Stafford loans for graduate students because those with advanced degrees tend to have higher incomes, and these loans do not encourage more students to enroll in graduate school.

However, with the struggling economy, more adults have been returning to college for graduate degrees and leaving with more debt. Master's degrees account for about $200 billion in outstanding student loan debt, while other advanced degrees account for another $100 million. This year approximately 830,000 people are expected to graduate with advanced degrees, with debt averaging around $43,500, up 10% from five years ago. Since the fall of 2007, roughly 56% or 3.6 million graduate degree recipients incurred loans.

In spite of the rising student loan debt levels, proponents of the government's decision to elimiate subsidized Stafford loans for graduate students say that they don't need as much help because they'll make more money. During a 40 year career, individuals with only a Bachelor's degree will earn nearly $2.3 million on average, while those with a Master's degree will earn an extra $400,000 on average. The median income for someone with a Master's degree is on aveage about $12,000 higher a year than someone with just a Bachelor's degree.

However, the pay difference is even smaller in some fields. For example, the arts and journalism. Some professions even require a Master's degree but typically do not pay more. For example, teaching and social work. Additionally, since the recession tuition has risen 11%, to an average of nearly $22,000 per year for private, non-profit graduate programs. At public universities, tuition rose 25% to $9,247, outpacing undergraduate tuition hikes.

Schools are raising tuition even though enrollment continues to grow. Between 2007 and 2010, enrollment in graduate programs grew 11%, to an all-time high of 2.9 million students. Costs are generally rising because colleges are charging higher tuition for more popular programs and public universities are receiving less funding from their states. However, it is often argued that graduate programs are expensive to run, especially in technological intensive fields such as engineering and science, and profitable departments often subsidize less profitable or unprofitable departments.

I suggest that anyone considering graduate school look into attending public universities, which are generally cheaper than private institutions. You should also consider if the cost of attending graduate school is worth it. An individual with a Bachelor's degree in business or engineering should earn about $19,000 a year more with a Master's degree but you need to consider how much you'll have to borrow in student loans and how many years it will take to pay that off. It is also important to remember that student loans are generally not dischargeable in bankruptcy. I look forward to your comments and/or questions.

Less People are Paying their Mortgages Late

The mortgage delinquency rate in the U.S. declined in the first quarter to its lowest level since 2008. It is believed that this is due to the improving job market, which is helping more individuals pay their bills on time. Additionally, tighter lending standards have led to fewer defaults, which may in turn lead to a decrease in filing bankruptcy.

In the last three months the share of home loans at least 30 days late dropped from 7.58% to 7.4% according to the Mortgage Bankers Association. The 30-day late rate peaked at 10.1% in the first quarter of 2010. It has not been lower since the third quarter of 2008, when it was 6.99%. The decrease in delinquencies may help lower foreclosures and help the housing market recover. Low interest rates, combined with decreased prices, should increase demand in the housing market.

Housing affordability also reached a new high in the first quarter of 2012 and sales of previously owned homes rose 5.3% from a year earlier according to the National Association of Realtors. Additionally, housing starts, which is new home construction, increased 2.6% to an annual pace of 717,000 in April. This was higher than what analysts expected. This also points to the sign that the real estate market is getting stronger.

The U.S. unemployment rate also fell in April to 8.1%, which is the lowest it has been since January of 2009. Additionally, rates for 30 year fixed loans dropped to a record 3.83% in the week ending May 10th, according to Freddie Mac.

Most troubled loans originated between 2005 and 2007. Stricter lending standards and decreased prices for borrowers who obtained mortgages after the housing market collapsed account for the better performance of loans that have orginated since 2008. Statistics shows that most borrowers experience late payments in the first three or four years of a loan, so it is anticipated that the worst of the foreclosure crisis has probably passed.

Lenders usually begin the foreclosure process when loans are more than 90 days overdue. The percentage of loans more than 90 days overdue fell to 3.06% from 3.11% in the first quarter of 2012 and from 3.62% a year ago. However, the share of homes that had received a foreclosure notice but had not yet been seized by banks increased to 4.39%, up 0.01% from the previous quarter.

The foreclosure process has been slowed by mortgage servicers since the fourth quarter of 2010, when they faced allegagtions of using impropoer and fraudulent paperwork to repossess homes with delinquent mortgages. The five largest servicers reached a $25 billion settlement with state and federal regulators in February. Foreclosure starts decreased in 41 states and the rate of loans in foreclosure fell in 22 states. Please leave any questions or comments you my have.