Money Health Central, a new portal for personal finance, goes live today.  A project of mine with five friends who are also bankruptcy lawyers, our goal is to provide solid, reliable information on money and debt issues for  consumers.

If you are a bankruptcy lawyer, this site is a resource for your clients.  If you are someone in financial trouble, we hope the site will help you work through the issues you face now and build skills for your post debt life.

Come on over and take a peak.

Two trends in the housing crisis are intersecting in my practice:  we’re seeing more loan modifications, all the while we see more and more homeowners with whopping negative equity. The question I’m asking each client eager for a modification is “what do you expect for this property five years from now?”

Most loan modifications are simply tacking the arrears to the loan principal and lowering the interest rate for some time.  With a property already worth more than is owed, the arrearage gets capitalized, and the loan principal increases.

When the homeowner owes more than the property is worth, the only way that property can be sold or transfered is by short sale (if the lender agrees) or by foreclosure.  The homeowner is now chained to the property and any disposition of that property in the near future will involve either a protracted negotiation with the lender or a foreclosure and a further hit to the borrower’s credit report.

There are several moving parts in this problem:  how great is the deficit?  for how long will the property be appropriate for the client?  how does the mortgage payment in the modified loan compare to the cost of renting?  Each different combination of factors produces slightly different  analysis.

But the underlying issue remains:  the real property is not really an investment any longer, even with a modified loan.  It is a place to live presumably at a price you can afford today.  When it is no longer affordable or appropriate, you will have a property that is essentially unsaleable in the  conventional manner.

For many clients with loan modifications, we are just kicking the underlying problem down a road a ways.

What is obvious to me is that the

Yesterday we got notice from one trustee that 5 of our confirmed Chaper 13 cases were in default and in danger of being dismissed.  Jackson Morris, a colleague up the Peninsula, sent a link to this map showing change in unemployment figures.

The default picture becomes clearer.

American Express radio commercials are touting a women’s money group, The Smart Cookies, who, we’re told, got control of their personal debt problems within two years.  The five women collectively owed $50,000, which seems small relative to the clients I see.

But what set my teeth to grinding was one woman’s assurance that it is possible to master debt problems “and still get the things you deserve”.   Arghhhh!  In my view, it is this sense that one “deserves” certain purchases that underlies a significant portion of the overspending problem.  What is the source of this belief that we are entitled to a certain standard of living or accumulation of goods and experiences?

Mercifully, the radio spot I heard didn’t go into the details of the Smart Cookies’ approach to money, but if their connection with American Express didn’t put me off, their announced sense of financial entitlement did.

As families and well established businesses pour through my office, I remain thankful that our bankruptcy laws and societal mores provide an economic fresh start for those who have no reasonable hope of repairing their finances

The process of filing bankruptcy is no more traumatic than the participant makes it;  the lead up to admitting you need bankruptcy relief is painful, but the steps to getting a bankruptcy discharge are painless.

We all benefit from freeing energy and money for the future of families;  we can be risk takers as business folks knowing that failure doesn’t have to blight the balance of our lives.

I am also grateful for a field of endeavor where I find continuing challenges:  new laws, nuances of state vs. federal law, and the never ending challenge of helping people in distress.  When so many other lawyers have abandoned the practice, I’m thankful that I find it satisfying and engaging after  32 years at the bar.

Reading the paper about corruption and judicial impotence in other countries, I treasure the fact that our legal system is, by and large, independent, honest, and potent.  We must not forget as a society that judges must be independent interpreters of the law, not the political view of the day.

Count your blessings and share them with others.  We are all in this life together.

Once again, a client told me that if she’d known before what she learned in the financial management class required to get her bankruptcy discharge, she probably wouldn’t have needed bankruptcy in the first place.

Pretty strong words, from someone who admitted that she approached the required class with low expectations.

She announced that she intended to get her child and her step children to watch the class as well, so they go out into the financial world well prepared to deal with money and credit.

The bankruptcy “reform” act of 2005 did little good for debtors or bankruptcy law or practice, but debtor education is a winner.

The news is usually a source of ideas for the Soapbox, second only to clients.  The news this month echos all too familiar themes.

• Notices of foreclosure sales must be single handedly supporting my local newspaper, the Mercury News.
• AP and the NYTimes write with amazement that mortgage loan modifications aren’t happening.
• The Mortgage Bankers write letters to the editors opposing a bankruptcy solution to the housing debacle.

Meanwhile, the average income of people through my door  has to have increased $75K a year in the past four months.  Bankruptcy now looks good to people making well over $200,000 a year.

The formerly well to do are following more and more long established small businesses that have hit a wall.

The news tells us the recession is ending;  if that’s so, the casualties will persist long after  the economy is supposedly recovered.

Senator McCain this morning on Meet the Press reprised the Republican view of the approach to stimulus:  tax cuts for small businesses.  I thought about the small businesses I had seen in the past couple of weeks.  Not one of them was paying income taxes, and their expenditure on payroll taxes was small, because they’d cut back on  employees. For the very small business, I don’t  see taxes as the culprit.

Credit card merchant fees are a much bigger piece of the small business expense picture than are taxes for most of my clients.  Each merchant pays a percentage of each credit transaction to the card issuer.   7-Eleven store owners are petitioning  Congress for regulation of the fees charged merchants  by the card issuers .

Everywhere you look you see the impact of credit cards on the economy.  Often it’s suit by American Express that brings a small business owner to my office.  Or the businessman makes a list of their credit card debt and the interest rates after the recent round of increases and realize that they can never pay off the debt at 28% interest.

I’m certainly not an economist and don’t have a Moran Plan for reinvigorating the economy, but the people I see in trouble aren’t there because of their tax burden.

Mom and pop businesses are beginning to dominate the list of my new clients over the past 30 days.  Retail businesses, construction, internet sales, real estate,  all are reaching the end of their ropes.  Distressingly,  these include a high percentage of long running, well established businesses.

Often, the business has been supported on the credit cards of the business owner, so the solution is a bankruptcy filing for the shareholders, freeing the business of servicing that debt.  I can’t tell if that will be enough, but often a small business can survive when relieved of the debt service from the past.

The trend, though, is ominous when you look at the economic health of the country.

Spokesmen for the banking lobby expect the world to stop spinning if bankruptcy judges gain the right to modify home mortgages. They construct a parade of horribles if a contract between a lender and a borrower is altered.

What they don’t explain is why this very same power to modify mortgages has not crushed the market for rental property, second homes, and commercial buildings. A bankruptcy plan can, today and for decades past,  change the terms of a loan on any of those kinds of property. Last I looked, the world was still turning.

The prohibition on altering the terms of a home loan is a 1984 addition to the bankruptcy law enacted in 1978. It is a special carve out for the home lending industry. Congress was told that it was necessary to promote home ownership. Perhaps a change is necessary to preserve home ownership.

My veterinarian father used to say that a goose is so stupid that it wakes up in a brand new world every morning. He probably didn’t know any lobbyists.