My clients often ask if there is an alternative to bankruptcy.  David Leibowitz, my colleague at Bankruptcy Law Network, outlined what it takes to get out of debt without bankruptcy.  The simple answer is make more money;  spend less on today’s expenses; use all your savings to pay off debt.

I want to pose the question:  even if that’s possible,  is it smart?  What do you forgo in that scenario?  If it’s travel; lattes; and premium cable, I’m OK with that.  But, if what you do without is emergency reserves; health insurance; and retirement savings, I think that a poor choice.

Whether financial difficulty was caused by bad luck or bad choices,  don’t make a bad decision, driven by pride, to compound the trouble by living without a safety net.  Too many of my clients arrive in my office with the conviction that they incurred this debt and, by damn, they want to repay it.  At some level, I applaud that desire.  But what are the likely consequences of repaying that debt if it means making no provision for financial stability now and in the future?

Part of reforming your financial situation involves looking beyond this month’s bills to the needs of the next decade and beyond. Lots of folks got into credit card debt focusing on their ability to make the monthly minimums, rather than on their ultimate ability to pay the debt off.

Particularly in times of profound economic uncertainty, consider the merits of a  fresh start and a plan for financial self sufficiency.

A debt  collector including the creditor itself must not contact a California debtor who it knows is represented by an attorney.  Yet the collector violation de jour seems to be the refrain, “I don’t care if you  have a bankruptcy lawyer, I’ll call you every day until you can provide a bankruptcy case number”.

If this happens to you, and you have told the caller that you are represented by a  lawyer about this debt, make sure to get the name, phone number, and the entity the caller represents.  It makes it easier to sue them for violation of Califorrnia’s Rosenthal Fair Debt Collection Practices Act.

Here’s the authority:  the federal Fair Debt Collection Practices Act prohibits contact by a third party collector with a consumer who is represented by a lawyer.  15 USC 1692c.

California expanded the consumers rights with respect to debt collection by including the original creditor in the class of persons covered by the Rosenthal Act.  Civil Code Section 1788.17 imports the prohibition of contacting a debtor who has a lawyer.

So, don’t get your legal information from a debt collector and don’t shrug off violations of law.  Tell your lawyer, make a record of the facts, and fight back.

The time between a notice of default on a mortgage loan and foreclosure now averages 176 days.  California law requires only 112 days.  So, while the number of defaults is increasing, the interval between the statutory notice of default and actual sale is also increasing.

Before the recent crisis, lenders typically issued a notice of default after three missed payments, and marched fairly briskly to a foreclosure sale.  I’m now seeing longer periods before initiating foreclosure and even voluntary postponements of sales by the lender.

This trend is particularly important to those who have decided to let the house go to foreclosure.   Where the loan terms are impossible, and without the possibility of modifying the loan in Chapter 13, or the income stream has shrunken, homeowners are trying to calculate how long they can remain in the house before title to the house passes to the lender.

Sadly, in this economy, for many homeowners the only return they will see on their investment in a home is the right to live there, payment free, until the foreclosure.

Quick:  how is a small Tennessee town like a California family facing foreclosure?  The New York Times suggests it’s because they were both sold risky financial products to meet their borrowing needs.  The unemployment-wracked town of 11,000 was not told about the interest rate risk in the bond derivatives that financial advisors promoted and sold the town.  The interest payments on the town’s bond debt have quadrupled.

That’s essentially the same story I hear from clients with adjustable rate, pick a payment loans on their homes.  The financial professionals advising them talked only about the immediate consequences of the loan, and downplayed the risks.  Over and over, clients tell me that when they questioned the broker about how they were going to make the full principal and interest payment, they were assured the broker would get them a better loan before any damage was done.

Why is it that politicians opposing mortgage modification in bankruptcy want to demonize the unsophisticated borrower without regard to the supposed professionals who sold and profited from these exotic financial products?  Are we going to hear that the city council of Lewisburg, Tennesee bought more sewers for the town than they could afford?

When are we going to put our energies into a solution to the foreclosure crisis, rather than finding a scapegoat?

Stand by:  I’m going to say something nice about BAPCPA, the bankruptcy “reform” law of 2005.  The debtor education requirement that is a condition of getting a discharge is a good idea.  Just this week, two clients have reported that they learned useful stuff from the required program.

Filing bankruptcy is a teachable moment for many:  they are trying to figure out what happened to them and how not to go through this again.  There is an openness to ideas and skills that may not have existed before.

The prebankruptcy “credit counseling”, the twin of the financial management class, is uniformly  held to be worthless. (Are you reassured that my keyboard hasn’t been hijacked by my evil twin?)  No one is deterred from filing as a result; for nearly everyone who readies themselves to file, there is no non bankruptcy alternative.

April is Financial Literacy Month.  You don’t have to be bankrupt to add to your bag of money skills.

The culture you grow up in shapes your views of truth telling, business ethics and privacy.  I see that day to day as I counsel clients who are immigrants from other parts of the world.  It’s sometimes an uphill battle to convince them that the “price” of bankruptcy relief is full disclosure, and that it is safe to tell all to branches of the government.

I sat with a group of very experienced bankruptcy lawyers and we traded our war stories about clients from other cultures and how differently some approached bankruptcy disclosure.  What blew me away was the United States Trustee sitting with us who seemed surprised by our experiences and blurted out that he’d never thought of cultural issues influencing debtors in bankruptcy.  Duh?