When politicians talk about credit cards, they conjure up images of consumer purchases, and often, of consumer spending run amok. However, the facts that I see in my bankruptcy clients show that credit cards are increasingly used to finance small businesses.

Entrepreneurs use credit cards in two ways: one is to buy goods and services for the business or cash advances to make payroll. The second way is more subtle: the business owner uses his personal credit to support himself in lieu of the salary he isn’t getting from the new business.

Too little attention is paid to the impact on business plans of funding at credit card interest rates. My sense is that it takes a dynamite business operation to retire a business loan carrying interest at 18-24%. Yet small business types resort to their credit cards because that is often the only money available. It further seems to mandate that if the business fails, the entrepreneur is personally exposed.

My colleague Jonathan Ginsberg writes about his reluctance to provide legal advice or second opinions by email. After all, he points out, it is our command of the law that is our inventory. Give it away and you go out of business.

I have a more profound reason to approach questions by strangers with caution: I have only the facts that the sender has chosen to disclose for purposes of my analysis. Often, the facts the writer thinks are central are either irrelevant or incomplete. Without all of the necessary facts, my opinion may be fatally flawed.

When I meet with a client, I have an opportunity to ask questions, develop the facts, and look for other pieces of the picture that either support or counter the facts the client has proffered. That back and forth allows me to establish the facts, then offer an opinion that is grounded in the complete factual picture.

I regularly see clients who have not filed returns because they have some issue with the IRS, either taxes that will be owed with the unfiled return, or taxes owed from earlier periods. They think they are avoiding trouble by not filing. Not so.

The IRS levies two separate penalties for non filers: a penalty for not filing the return and a separate penalty for not paying the tax.

Perhaps you can’t pay all you owe with the return, but why incur an avoidable penalty for not filing a timely return?

Tax penalties are not dischargeable in Chapter 7 until they are more than three years old. Contain the damage: file on time.

I’ve often commented on the pressures in our society to spend. The US economy is fueled by consumer spending. The whole economic stimulus package is predicated on the recipients immediately spending the governmental windfall rather than saving it.

Marshall Loeb was spot-on with his Six Lies We Tell Ourselves About Our Spending. The excuse that I find most pernicious is ‘I work hard, I deserve it”. Ads fan the flames of a sense of entitlement to fine things and instant gratification. Few voices are heard suggesting that fine living comes after setting aside money for emergencies and retirement.

I see all too many clients at retirement age with absolutely nothing to live on but Social Security. The lucky ones have family that is financially stable. The unlucky are alone and living on the edge.

Read Loeb’s article, banish those excuses from your thinking, and start saving something today.

Sort of unwittingly, I got involved in one of the bigger issues plaguing bankruptcy courts recently: the claim filed in the bankruptcy by the debt buyer without supporting documentation. I objected to a claim filed a client’s case by Roundup Funding, who had never had any contact with my client prior to filing. There were no documents attached showing that Roundup was really the owner of the claim.

Roundup’s response to the objection proffered every argument suggesting it really owned the claim, except an assignment proving that it was the owner of the particular debt in question. This, it turns out, is their M.O., and as I looked, I found $400,000 in claims it had filed in other cases in just this bankruptcy division in the last calendar year.

The Chapter 13 trustee saw immediately what the issue was and supported my objection to the claim, even though the amount of money involved in this particular case was small. Small claims multiplied by enough cases, and there is real money at issue.

The United States Trustee has trumpeted lately that it is interested, not only in debtor misconduct, but in abuse by creditors. The UST responded to my letter on this issue, and professed interest. They then announced their interest in the issue at a gathering of bankruptcy lawyers, as apparent evidence that they didn’t just pick on debtors.

Come the hearing on my objection, the Chapter 13 trustee appeared and advised the judge how this seemingly small potatoes claim hearing had much larger implications. No sign, however, of the UST, who has a governmental mission, supposedly, to police the bankruptcy courts for abuse and attorneys on staff to do the work.

Roundup made a deliberate decision to withdraw its claim rather than appear in court to prove that it was entitled to file the claim. The judge and trustee discussed setting up an omnibus hearing to look at a range of Roundup claims.

Where was the UST? As I walked out of the courtroom, I saw the Assistant US Trustee sitting quietly in the back of the courtroom. Perhaps I imagined her finger in the wind, taking the measure of the situation, before doing anything.

The Mercury News had a great article on CCCS of Santa Clara County and its president Joy Thormodscard. It reinforces my advice to clients that CCCS is the only credit counseling agency whose advice on alternatives to bankruptcy I trust.

Take a look at their downloadable booklet on Getting Smart About Credit.

Also on point is their input on avoiding foreclosure and on reverse mortgages. Keep up the good work, CCCS.

My inquiries among other bankruptcy lawyers nationwide has yet to unearth a real, live homeowner who has been able to meaningfully rework a bad mortgage into a tolerable one. Not one homeowner.

From where I sit, I cannot tell whether it’s because the lenders are unwilling to do anything significant or because the homeowners are not effective in asking for enough to make a difference. Which ever it is, the foreclosure avalanche continues.

I suspect that the lenders (or their agents, the mortgage servicers) haven’t committed to making meaningful changes and haven’t staffed their loss mitigation departments with sufficiently empowered employees. It isn’t enough to allow a delinquent borrower to make a payment and a half til they catch up, or to tack the arrears onto the end of an ever adjusting ARM.

Which makes it more imperative that Congress pass, and the President sign, the Foreclosure Prevention Act with its provision allowing the modification of existing mortgages on family homes in bankruptcy.