Tuesday, February 14, 2006

Jay S. Jump quoted in Seattle Times

It now costs you more money to prove that you're broke

By Melissa Allison
Seattle Times business reporter

In October, when a new federal law made it more difficult to file for personal bankruptcy, it also made filing more expensive.

Since then, the cost to file for Chapter 7 bankruptcy in the Western District of Washington has jumped from $209 to $274, and filers now have to pay $40 to $50 for credit counseling before they can file.

On top of that, some bankruptcy lawyers have doubled their fees because of the additional deadlines and paperwork required by the new law.

"It takes more time, more money and more effort on the debtor's part," said Michelle Branigan, a bankruptcy and real-estate lawyer in Seattle. Her fees went up by a couple of hundred dollars.
Jay Jump, a bankruptcy lawyer in Kent, raised his Chapter 7 fee from $600 or $700 to $1,250.
Jump runs background checks on his clients now to verify certain facts because the new law holds attorneys liable for false information. In the past, only the dishonest client was held liable, Jump said.

In eight years and about 4,000 bankruptcy cases, Jump has had two clients lie to him about their financial situations.

Lawyers also have to crunch more numbers to prove that their clients qualify for Chapter 7 bankruptcy, which is the kind that wipes away many debts. Chapter 13 calls for repayment over time.

He and other attorneys said they expect bankruptcy filings to bounce back after a recent lull.
The number of Chapter 7 filings in Western Washington jumped from around 2,000 a month to 9,912 last October, then dropped to 133 in November and 172 in December.

Richard Granvold, a bankruptcy attorney in Federal Way, filed 260 bankruptcy cases in the 15 days before the law changed in October and has filed only three since then. But that pace will change.

"It will pick up," Granvold said. "A lot of people filed before the law changed, so it dropped off. It'll take until August to be back where it was."

That doesn't surprise the American Bankers Association, whose members lobbied for the new law. It was not intended to slash the number of bankruptcies significantly, spokeswoman Laura Fisher said.

"We weren't expecting a huge drop in filings, just that the system be more fair," Fisher said.
To creditors, that meant weeding out the 5 to 10 percent of Chapter 7 filers with high incomes who used bankruptcy as "a financial planning tool," Fisher said. Those people "got into debt, declared Chapter 7 and erased all their debts, leaving the rest of us with the tab."

To go bankrupt now, they will have to file Chapter 13, which forces them to repay more of their debts.

Fisher figures the higher cost of filing is worth it for debtors.

"If you think about the amount of relief people are getting, sometimes in the tens of thousands of dollars, it's significant," she said.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Monday, February 13, 2006

A perfect storm

Weathering stormy sea of rising debt
By Patricia Hasson

Several years ago, Warner Brothers released The Perfect Storm, an epicfilm about the impact of a cataclysmic storm formed by the confluence ofseveral severe weather systems in the North Atlantic. As the filmdramatized the storm's tragic impact on the crew and families of a shipknown as the Andrea Gail, the audience witnessed the bravery as well asthe folly of the crew in the face of doom they could not see but couldhave easily avoided.

A perfect financial storm may be brewing for many families in theeight-county Philadelphia region. A debt and savings survey of 833people completed late last year by Consumer Credit Counseling Service ofDelaware Valley revealed that debt loads were rising across the board,but particularly among people with low to middle incomes.

An alarming 33 percent of people with incomes of between $41,000 and$50,000 reported that their debt had grown last year. With many familiesstill feeling the effects of last year's holiday spending, it is likelythat debt will continue to go up. In fact, among the agency's 9,000customers who had one-on-one counseling sessions last year, the averagedebt was a little more than $14,000.

The reasons for our escalating consumer debt are diverse, but themost-cited reasons were the costs of housing, fuel, health care and"unexpected" expenses. And when we look ahead, there are several trendsconspiring to make it more difficult than ever to manage that debt.

Last year, the average cost of a barrel of oil, which governs the priceof heating oil, gasoline and a multitude of products used by industryand consumers, rose by 40 percent to nearly $55 per barrel. During 2005,the Federal Reserve raised the nation's discount rate by about 60percent to 5.25 percent. The discount rate is a benchmark thatinfluences the interest rate charged on such debts as mortgages, homeimprovement loans, and outstanding credit-card balances.

Now, federal banking regulators are trying to save consumers fromthemselves by issuing guidelines to credit-card companies and banksstating that monthly minimums should cover interest, any fees and extracharges, and at least 1 percent of the principal. Many observers expectthe immediate impact of the new guidelines will be to cause credit-cardminimum payments to double, creating pain for consumers as they get usedto a new playing field.

These dramatic increases are taking place in an environment where thepersonal income per capita among Pennsylvanians has been rising at nomore than 3 percent in recent years.

While the storm clouds are gathering, the situation for most of usprobably is not yet out of control. We can take steps to avoid or rideout the storm in a safe harbor. Recognizing potential financialdifficulties and what they may mean for us is the first step in avoidinglong-lasting debt and cash-flow distress, loss of property and a reducedstandard of living.

Since the interest charged on credit-card debt is often exorbitant - ashigh as 17 to 22 percent - the most important step you can take is toreduce your credit-card balance by eliminating it altogether, setting upa payment plan, or increasing your monthly payment well above theminimum, accelerating the payback of that debt. (Making only minimumpayments can increase the cost of goods purchased two or more times.)

Consolidating your debt and reducing the interest rate you pay are also viable solutions. Consolidating debt doesn't reduce it, but it is astart in the right direction. Also, be careful of loans that requireinterest-only payments for a period of time, since the payment of theloan is only being deferred.

Take steps now to avoid The Perfect (Credit) Storm.

Saturday, February 11, 2006

New Post

The Jump Law Group has created a blog with some great articles for your review!

Click on the link below to go to the blog.

Jay S. Jump
Jump Law Group

What is Credit Scoring?

Credit Scoring

Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans. Here’s how credit scoring works in helping decide who gets credit — and why.

What is credit scoring?

Credit scoring is a system creditors use to help determine whether to give you credit.

Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it’s accurate before you submit a credit application. An amendment to the federal Fair Credit Reporting Act (FCRA) requires each of the major nationwide consumer reporting companies to provide you with a free copy of your credit reports, at your request, once every 12 months.

Free reports have been phased in during a nine-month period, starting with the states in the West and ending with states in the East. Beginning September 1, 2005, free reports will be accessible to all Americans, regardless of where they live.

To order your free annual report from one or all national consumer reporting companies, visit www.annualcreditreport.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281. The form is at the back of this brochure; or you can print it from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They provide free annual credit reports only through 877-322-8228, www.annualcreditreport.com, and Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281.

If you’re not yet eligible for a free annual credit report, a consumer reporting company may charge you up to $9.50 for each copy. To buy a copy of your report, contact:

· Equifax: 800-685-1111; www.equifax.com

· Experian: 888-EXPERIAN (888-397-3742); www.transunion.com

For more information, see Your Access to Free Credit Reports at ftc.gov/credit.

Why is credit scoring used?

Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.

How is a credit scoring model developed?

To develop a model, a creditor selects a random sample of its customers, or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.

Under the Equal Credit Opportunity Act (ECOA), a credit scoring system may not use certain characteristics -- like race, sex, marital status, national origin, or religion — as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants.

What can I do to improve my score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change — but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

· Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.

· What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.

· How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.

· Have you applied for new credit recently?
Many scoring models consider whether you have applied for credit recently by looking at “inquiries” on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not counted.

· How many and what types of credit accounts do you have?
Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It’s likely to take some time to improve your score significantly

How reliable is the credit scoring system?

Credit scoring systems enable creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, credit scoring systems must be based on a big enough sample. Remember that these systems generally vary from creditor to creditor.

Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer.

What happens if I am denied credit or don’t get the terms I want?

If you are denied credit, the ECOA requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: “Your income was low” or “You haven’t been employed long enough.” Unacceptable reasons include: “You didn’t meet our minimum standards” or “You didn’t receive enough points on our credit scoring system.”

If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.

Sometimes you can be denied credit because of information from a credit report. If so, the FCRA requires the creditor to give you the name, address and phone number of the consumer reporting company that supplied the information. You should contact that company to find out what your report said. This information is free if you request it within 60 days of being turned down for credit. The consumer reporting company can tell you what’s in your report, but only the creditor can tell you why your application was denied.

If you’ve been denied credit, or didn’t get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get credit, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report.

Where can I get more information or file a complaint?

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

General Tips

The Federal Trade Commission (FTC) is the nation's consumer protection agency. Here are some tips from the FTC to help you be a more savvy consumer.
Know who you're dealing with. Do business only with companies that clearly provide their name, street address, and phone number.

Protect your personal information. Share credit card or other personal information only when buying from a company you know and trust.

Take your time. Resist the urge to "act now." Most any offer that's good today will be good tomorrow, too.

Rate the risks. Every potentially high-profit investment is a high-risk investment. That means you could lose your investment - all of it.

Read the small print. Get all promises in writing and read all paperwork before making any payments or signing any contracts. Pay special attention to the small print.

"Free" means free. Throw out any offer that says you have to pay to get a gift or a "free" gift. If something is free or a gift, you don’t have to pay for it. Period. Report fraud. If you think you've been a victim of fraud, report it. It's one way to get even with a scam artist who cheated you. By reporting your complaint to 1-877-FTC-HELP or ftc.gov, you are providing important information to help law enforcement officials track down scam artists and stop them!

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Saturday, February 04, 2006

It would be nice if Congress could practice what they preach

In the Saturday Wall Street Journal I read an interesting article on page A26 - Tax Talk Goes Orwellian.

It seems that when Congress passed bankruptcy reform, they weren't thinking about the example they themselves have set.

Our National Debt is presently at $8,184,000,000,000.00. Yes, there are that many zeros. (You thought your $10,000.00 credit card debt was high!).

But rather than behaving in such a way to reduce their debtload, which is what Congress told you and I to do, they instead are poised to raise the United States Debt Limit to $9,000,000,000,000.00. Congress is not publicizing this upcoming vote because they don't want you to know they can't pay their debts. If the government doesn't raise the debt limit, then they will default.

Rather than tightening their belt, Congress simply votes to raise their own credit limit.

Jay S. Jump
Jump Law Group