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.

Callers to my office often expect a free consultation.  Somehow, bankruptcy attorneys got in the habit of so undervaluing what they do that they gave it away for nothing. I have always swum up stream on this one: there has always been some sort of charge for my time, usually discounted, but a charge nonetheless.

But maybe I’ve been wrong.  A client came to me recently after a free consultation with another bankruptcy lawyer.  I was interested in what had occurred that the client and attorney didn’t bond.  I probed.  Come to find out, the free “consultation” was 15 minutes long and the client was instructed to bring no documents!

In my book, that’s not a consultation, that’s an introduction to the lawyer and sitting through a sales pitch.  So maybe what others have been giving away isn’t really legal advice but marketing.

Like it or not, bankruptcy involves the sweep of a client’s life, their living situation, financial history, goals, debts, assets, and financial interconnections with others.  I have trouble getting that information, analyzing it, and making recommendations to the client in less than an hour, and often two hours.

The initial consultation is some of the best work I do and the most valuable.  I charge for it because I invest real work in that meeting.  I want the client to leave with real information and an overview of their choices.

At a hearing on the approval of my attorneys fees in a Chapter 13 case, the judge questioned the fees I attributed to defending a motion for relief from stay which was granted after three hearings.  Wasn’t this a lost cause from the start, she asked?

My reply was that I had raised questions of creditor misconduct as well as the issue about whether the moving party was the correct person to be bringing a motion for relief from stay.  This issue is developing as a serious issue nationwide as it is revealed that the original notes are no where to be found, and whatever transfers of those notes have not been accomplished according to long standing rules of law.

I replied to the judge that the client had directed me to oppose the motion and had not objected to the fees I sought for the effort.  My application was approved.

But the longer I thought about it afterwards, the more troubling I found the judge’s inquiry.

• Suppose I knew objectively that the debtor was in default and had no hope of getting current?  Does that relieve me of my undertaking of loyalty to the interests of the client?   Doesn’t the Rights and Responsibilities statement in the Northern District obligate me to defend motions for relief from stay?
• Does it mean that if I take a position that the judge believes I should have known from the beginning was a loser, I do so without pay?
• Am I obligated to withdraw if my view of the probability of success differs from the actual outcome?

Like so much in bankruptcy these days, I don’t have any answers.  But the fact the question was raised from the bench is disturbing.

The email said: ” We saw you two months ago about bankruptcy.  The foreclosure is Tuesday.  Can you help?”

I wanted to reply:  “Where have you been in the past two months?  What were you thinking to wait til now to start filing bankruptcy?”

Instead I said: “Bring information, money and be here in two hours.”   But what are people thinking to wait til the last minute?

If, as so many clients say, saving the house is the most important thing, why gamble by waiting to within hours of the actual foreclosure sale to move to file bankruptcy?  Why aren’t your actions (to save the house) consistent with your statements (about the importance of the house)?

Bankruptcy lawyers, especially experienced ones, are few in number and generally overwhelmed with work.  Don’t count on finding available legal help at the last minute.

Here endeth the rant.

Every client asks that question.  My friend Susanne Robicsek walked her readers through the timeline of a Chapter 7. But the real gating issue is “how long will it take you to get your attorney all the needed information”.

It is getting the raw information to us that is the real slow down in most cases.  Cases lag when the client fills out as much of our questionnaire as they find convenient;  provides most of the paystubs; promises the tax return; and has to search for information on the insurance policy.  We hustle to get the schedules done, and the client then doesn’t have all the necessary funds to finish paying us.

As Susanne describes, once filed, a Chapter 7 marches fairly predictably to discharge.  The time required for the debtor to empower the attorney with a full deck of cards is unknowable, to the attorney, and  within the control of the client.

My friend Doug Jacobs advises debtors to tell their bankruptcy  attorneys everything, pointing out that intentional omission of assets risks denial of discharge and even jail.

I seldom see the intentional omission:  much more frequent is the debtor who simply can’t be bothered to read the form and consider whether elements in their financial lives fit the question on the form.

So much depends on making full disclosure.  The minute the trustee discovers at the first meeting of creditors that you have an asset that isn’t in the schedules, the trustee begins to wonder:  what else hasn’t been disclosed?  You, and your attorney perhaps, have lost credibility.  Time and money will be required to clean up the mess created by inattention.

I wish long and often that clients could direct some of that nervous energy and anxiety about bankruptcy into doing a better job getting me all the information necessary to fuel a smooth and successful bankruptcy case.

Forbes has compiled a list of cities where credit card spending is highest. My scan of the list suggests that this list is simply another version of the areas of the country where housing is in trouble.  Homeowners with outsized mortgage payments rely on credit cards to make up the difference needed to support the family.

Which leads me to those TV ads for attorneys or other services offering help with mortgage modification.  Assuming the advertiser is successful in negotiating a mortgage modification, the homeowner is still  left with the debt  that piled up while why struggled with the original loan terms.

Even without the ability to modify mortgages on principal residences, Chapter 13 is a superior tool for addressing the homeowner’s entire financial situation. And the fees for the professional involved are subject to court supervision, something missing from those drumming up business on TV.

Logic and reality have been bouncing off my clients’ deflector shields recently on the issue of their houses.  Confronted with the gap between their income and even the payment on a modified loan, I get the refrain, “But keeping the house is the most important thing in my case!”

Yes, and how do you expect to do that?   I get no meaningful answer.

This house business has become so irrational and  embedded that I’m thinking it’s a resistant strain of something. (Is there a strain of “Home Flu”?)   “House” or “home” is like God or motherhood:  a positive one dare not challenge with words about economic reality.

What’s interesting about these reactions is that seldom are we talking about the long standing family home.  We’re talking about houses purchased in the past  five years or so.  Which of course corresponds to the frantic run up in Bay Area home prices.  So these homes were, from the beginning, never likely to be the family seat.

How do I persuade people that a home is simply housing, and what’s really important are the people who live there?

Should you guarantee a student loan, asks my good friend Doug Jacobs.  His is the cool, reasoned analysis.  I want to jump up and down and say DON”T DO IT.

It pains me to say that.  My undergraduate education was funded in part with modest student loans.  I believe education is the key to much that is personally  positive and societally important. I applaud the public policy that is willing to make college more widely affordable.

Student loans have taken on a malevolent quality over the past years.  Loans are made apparently without any counseling about the consequences of getting a four year degree at an expensive private school in art history.  (That was one of my early cases:  $100,000 in loans for a skill set that allowed my client to earn $21,000 a year).    Since student loans aren’t dischargeable, they have the potential to blight the life of a student who borrows too much, never uses the skills acquired, or who finds the economics of the profession changed between school and career.

The new private student loans bear interest rates akin to credit cards, according to a recent story in the New York Times.  The Times  blog   rounded up more on student loans.

Then there’s the issue of timing:  parents guaranteeing the loans of their children face having student loans hanging over them as they approach retirement.  The student defers payment on the loan, keeping the parents exposed to the debt.  It entwines the two generations financially long after the student is an adult.  Retirement budgets seldom have available dollars to pay off student loans.

My advice is to approach parental guarantees of student loans with the same caution you use when confronted with a coiled rattlesnake.

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.