“Saving is for losers”, claims the radio ad for a Rich Dad seminar.  They couldn’t have picked a phrase more likely to make me see red than that.  The absence of savings as a cushion for the economic bumps in life scares the hell out of me.  And my clients nearing retirement with nothing saved break my heart.  All the while, those “wise men” trying to sell the ambitious a book, a program, a service slam savings.  Arghhh, as Charlie Brown used to say.

Funny, but it seems to me that my bankruptcy office is crowded with those devotees of one get-rich investment wizard or another.   The savers are presumably getting along.

I’ve frequently thought it would be instructive to see what the financial gurus were saying about get-rich-in-real- estate now that real estate has crashed.  Unfortunately, I’ve been too busy dealing with those who tried it and now need to file bankruptcy to do the leg work.  Apparently, facts don’t interfer with the sales pitch.

I’ve often lamented here and on Bankruptcy Law Network about the media voices urging spending while no one, but ING, touts savings.  Guess it all proves that there is no limit to the chuzpah of a salesman.

I’ve been pondering:  what do I have to do to become too big to fail?  Why does rampant stupidity in the lending business qualify one for a government bail out?  Are any of the very expensive management types who brought us this financial melt down going to lose anything in the process?

Inquiring minds want to know….

The good news about old debt is that, after four years from the breach of a contract, the debt is unenforceable.  The bad news is that a creditor is not barred from trying to slip one past the snoozing consumer.

Zombie debt, old accounts sold and resold to debt buyers, is drawing increasing attention in the media. I warn my bankruptcy clients that despite the discharge in bankruptcy, they will undoubtedly be hounded by some debt buyer who bought their account without knowledge of their bankruptcy.

I see an easy fix in California.  Now, the statute of limitations is an affirmative defense.  It must be raised by the defendant in a collection action in their answer to a complaint.  Thus the collector is free to seek collection of ancient debt, and the burden to assert the statute of limitations falls to the debtor.  A debtor who fails to answer the complaint forfeits the protection of the statute of limitations.  And certainly, most of these suits are disposed of by default, no answer being filed.

What if we reversed the burden on the statutue of limitations, and the plaintiff had to plead and prove that the debt is not barred by time? Then debt collectors could not prevail over the unsophisticated or impecunious consumer who failed to assert his rights.  Worth thinking about.

The changes to credit card billing practices proposed by the FRB are welcome, but just scratch the surface of the crushing quality of credit card debt. My sense, talking to financially stressed people day after day, is that credit cards have merely postponed for many Bay Area residents the recognition that they cannot live a middle class life in this high cost region.

The cost of living in the Bay Area is some 150% of the national average; our salaries are higher, but not 150% higher. The vital, start up, high tech, high risk economic climate makes huge winners of some, and economic losers of others. The availability of credit cards and the energy with which those cards are marketed have made it easier to mask the fact that a middle class life is more expensive than some can afford.

The other issue that makes credit card debt so poisonous is that it bears interest that a generation ago would have been criminal. California concepts of usury generally prohibit individuals from charging more than 10% on loans, yet banks can regularly charge twice that to borrowers in good standing and twice that again to borrowers in default. The FRB proposed rules don’t deal with that issue.

At base, the problem with an indebted middle class is more profound than accounting rules on how payments are to be applied will solve.

My friend Kurt O’Keefe writes about the 6 trillion dollars in home equity than has evaporated in the mortgage meltdown. When I look around me in the Silicon Valley and environs, I question just how real that equity really was. Reckless lending practices made a vast pool of people potential buyers for a limited quantity of homes in a desirable part of the world. More buyers chasing fewer homes lead to huge increases in home prices.

This “equity”, the increased value in the surrounding homes, never would have existed had it not been for mortgage lenders passing out money like flyers at a rally. It was artificial from the beginning.

The correction is painful to those who bought or borrowed at the top, but the top was a man- made illusion.

As I look over the mortgage rescue legislation the Senate is considering, I conclude they are clueless about what it takes to keep families in their homes. No foreclosure is going to be prevented by counseling. No home is saved by giving buyers at foreclosure sales a tax credit. Measures to prevent this mess from occurring again don’t help today’s sufferers an iota.

The one provision in the proposed bill that might help today’s homeowners facing foreclosure was the provision that allows bankruptcy courts to perform the loss mitigation that the lenders talk about but don’t do. Let bankruptcy courts write secured claims down to the value of the property today; let the court excise the indexed increases in interest rates. Provide some meaningful help to real, live families who may otherwise be homeless.

If Congress can’t do that (and they show few signs of willingness to buck the bankers who brought us this mess) they should at least refrain from claiming they are doing anything to keep people in their homes. Would you say that’s likely?

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.

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.

My colleague Jonathan Ginsberg pointed out the play that the bankruptcy filing numbers are getting in the press: his local paper reports that bankruptcy filings are soaring.
In looking at the filing numbers, it is important to remember that 2006 was an aberrational year in consumer bankruptcy. The bankruptcy “reform” act became effective mid October, 2005. Huge numbers of people rushed to file bankruptcy before the law changed.

After the law changed, there was a lull in bankruptcy filings. I think two things are behind the low filing numbers in 2006. People who were on the fence about filing bankruptcy accelerated their decision to file because of the consumer-hostile provisions of BAPCPA, so those folks who normally would have filed in 2006, filed in 2005 to beat the change.

Secondly, after the amendments became effective, it took a while for the public to realize that bankruptcy relief was still available and for bankruptcy lawyers to master the changes in the law. Some bankruptcy lawyers left the practice and debt collectors told debtors that bankruptcy was not longer available to them or for the kind of debt that collector was trying to collect.
Certainly, there was no drop off in 2006 of people up to their ears in impossible debt; prosperity did not break out because we erected barriers at the bankruptcy court door. People’s ability to deal with the debt they had remained unchanged.

So, one should be cautious in drawing conclusions from a comparison between bankruptcy filing numbers between 2006 and 2007. That said, my experience suggests that there will be an onslaught of bankruptcy filings in 2008: the mortgage meltdown, slowing economy, and higher awareness of bankruptcy’s continuing availability will make debt relief look good to the consumer.

I find a real irony in discussion of the economic stimulus package under consideration to give out money to consumers in the expectation that they will immediately spend it, to our general benefit. Prof. Elizabeth Warren started a discussion of the economy’s reliance on consumer spending.

Commentators and economists consider a stimulus dollar that is saved to be wasted in the equation of avoiding recession. Yet the people I see daily need some savings more than any material thing you can name. They live from paycheck to paycheck, they have nothing for emergencies much less retirement.

While I don’t buy the canard that most people in bankruptcy recklessly overspent, there is something wrong with an approach to the economy that is dependent on continuous consumer spending.

Savings needs a better publicity agent.