Tag Archives: National Bureau of Economic Research

Can You Be Too Broke To File Bankruptcy?

Can you be too broke to file bankruptcy? This question was raised by an article posted on the CNNMoney website May 7,2012 and titled Too Broke to Go Bankrupt.

The article suggested from recent statistics collected by the National Bureau of Economic Research (NBER) that an estimated number of people between 200,000 and one million debtors would be unable to afford the steep cost of filing bankruptcy this year. NBER reports that a Chapter 7, the simplest and most common bankruptcy filed, will cost more than $1,500 in lawyer and legal fees to file in 2012.

One group of professors from several mid-west universities did research on how bankruptcy filings spiked after people received their tax rebates. They predicted some 200,000 debtors would use their tax refunds to file in 2012. From their research, they concluded that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has added a lot of paperwork to the bankruptcy process driving the costs of bankruptcy higher.

Many predicted the 2005 law would slow bankruptcy filings down and make it harder to file. With the Great Recession, those predictions went out of the window as record numbers of people filed between 2008 and 2011. Since the Great Recession ended, the filings have leveled back off to the numbers just before the recession began.

Still the NBER research suggests that those people filing today are the ones that can afford to. One of the research members was quoted as saying, “it ended up being the relatively better off, or middle-class consumers who can actually afford to file, and the people with lower incomes can’t afford to file.”

Although this writer does not doubt the validity of the facts presented by the NBER research group, and where this writer feels there are completely broke people who feel they cannot afford to file bankruptcy because of the higher fees, my question is, “Can you afford not to file?”

The idea behind filing bankruptcy is either to protect what assets you own from creditors, and/or to make a fresh new financial start free from creditor collection activities. If you have assets worth protecting, you can find a way to get the money to protect them. If you cannot financially withstand the onslaught of collection agents and garnishments from your wages, you cannot afford not to file.

If you are a financial hardship case, here are a few ways you can afford to file bankruptcy:

  1. You can file Pro Se in simple no asset Chapter 7 bankruptcy, saving the cost of a lawyer. That would leave you around $300 in legal fees to pay and those can be waived under certain financial hardship cases.

  2. You can seek Pro Bono services from lawyer groups who give their time to help those with hardships.

  3. If you still have a job, you can stop making payments to your creditors because the debts will be discharged in your bankruptcy. A bankruptcy lawyer can help you to determine which payments you can stop making in order to raise enough to cover the costs of filing, including his fee.

Can you be too broke not to file bankruptcy? Not really. Being broke is when most of you should file. Ask a seasoned bankruptcy attorney if he thinks you are too broke to file.

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Tax Refunds Are Being Spent on Bankruptcy Legal Fees

Our rental tax refund treat to ourselves was t...

Our rental tax refund treat to ourselves was this desk. It is a Paul McCobb Planner Group desk. Just delivered today. Thank you Swank. (Photo credit: Wikipedia)

At a time when Americans who chase the American Dream should be spending their tax refunds on lavish lifestyles and dream vacations, many are spending their tax refunds on trying to get out of hock. According to the National Bureau of Economic Research (NBER), more than 200,000 Americans will use their tax refunds to pay for bankruptcy filings and legal fees in 2012.

Bankruptcy filings were down 12 percent in the first quarter of 2012 compared to the first quarter of 2011, but those statistics have not changed what NBER has known for a long time: “At the first part of the year, when Americans receive their tax refunds, there almost always is a spike in personal bankruptcy filings.”

Since the passing of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, bankruptcy costs have continued to soar because lawyers must now verify more today than they did before the law change. Time is money to all professions and especially to the legal profession. The U.S. Government Accountability Office says that legal cost for bankruptcy administrative and legal fees has grown from $921 in 2005 to $1,477 in 2007.

In many cases, the only way a bankrupt debtor can afford to pay the legal costs to file bankruptcy is their tax refund. The average tax refund last year was $2,913, enough to pay to file for bankruptcy.

The 2005 laws were supposedly passed to slow down the abuse of filing for bankruptcy protection. Instead, the Great Recession brought record numbers of bankruptcy filers to the bankruptcy courts. Now that the recession has officially ended, bankruptcy filings are beginning to slow down again, but many wonder if it is because now so many can not afford to file.

Many have questioned whether raising the costs of bankruptcy filings is the way to slow down abuse. The argument goes that desperate people often might use desperate means to accomplish their short term goals. Another argument offers that the ones who really need bankruptcy protection are the ones who will be unable to pay the fees. The various arguments has caused one law professor at the University of Illinois to opine, “It just means that financially distressed people are not necessarily getting the help they need.”

It is a sad day for many Americans when the search for the American Dream has become a simple search for the almighty dollar, in of all places, a tax refund. This, just to get out of hock.

Filing for bankruptcy protection should be about a chance to start over for those who have fallen on hard times in their pursuit of happiness. Instead, for some, it might quickly be becoming an end to the means. Some of these Americans not able to file for protection may not be experiencing a physical debtors prison, but will their ultimate fate be the prison of the streets?

With everything financially costing us today from birth to death, and from having to not having, where does it all end?

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Aftermath of the Great Recession

The National Bureau of Economic Research (NBER) declared the Great Recession, as it is now called, started in December of 2007. Since then the United States has officially lost 7.245 million jobs. This figure does not include the additional jobs that are needed to employ the increased population, but it does include jobs added over the last three years. NBER has also declared the Great Recession is over, but if that is true, why aren’t the unemployed returning to work?

The official unemployment numbers in March 2011 were 8.8%. At the height of the Great Recession in 2009, the unemployment rate was a little over 10%. It would appear we are gaining ground, but the figures do not take include important factors like how many permanent jobs were lost, the increased population, the labor participation rate, and the employment to population ratio.

The labor force participation rate represents the proportion of the civilian non-institutional population that is in the labor force. As of March 2011, the labor participation rate has lowered. The rate currently stands at 64.2%. In December of 2007, at the beginning of the Great Recession, the rate was 66%.

The highest civilian labor participation rate since they began measuring it was measured in January of 2000. It was 67.3%. This means there are currently around 4.25 million people in the United States who cannot be accounted for in the official unemployment numbers. The unaccounted workers most likely need a job and can’t find one, or they are unwilling to work an available job.

The employment to population ratio is similar to the labor participation rate and represents the proportion of the civilian non-institutional population that is employed. Amazingly, that ratio stands at 58.5% which is only 0.1% above record lows. The employment to population ratio includes known jobs compared to the population.

Unemployment figures are based on people who have been looking for a job, and these figures support the idea there are more people unaccounted for who have been lost in the unemployment figures. This means there are a loss of real jobs and not a loss of employment due to retirement.

Currently, the official tally for permanent jobs lost since the beginning of the Great Recession stands at 7.245 million. The highest figure for permanent job loss was near 8.75 million in January of 2010. With the economy improving, new jobs have been created to replace the lost jobs, but at a slower pace.  

Add to all of these statistics the fact our population continues to grow through birth and increased immigration, and you can understand why not every has found a job. Available jobs are simply not keeping pace with the developments, and there is a growing number of people who have stopped looking for work.

Eleven million new jobs need to be created to put us back in the same state of employment we were in at the beginning of the Great Recession. The new jobs would also have pay at a rate (adjusted for inflation) which is comparable to what they paid in December of 2007.

Unfortunately, most new jobs are being outsourced these days, so the future labor picture looks bleak. If a person is fortunate enough to find a job, the job usually doesn’t pay what it did.

Bankruptcy is frequently caused by a loss of income. Economic recovery may not happen in the foreseeable future, and bankruptcies may increase. If you have lost your job or you are unable to file a job and you are considering filing for bankruptcy, you may need the help of a bankruptcy lawyer.

Debt creates stress and if you have not found a job you may be facing a financial crisis. If you live in or around the metropolitan area of Rochester, New York, contact us at www.BankruptcyHome.com . We will help you find a bankruptcy attorney in your area who can answer your bankruptcy questions.

Lobbying for ‘reform,’ was credit-card industry fighting its own excesses?

First in a series: Examining the interplay among bankruptcy, historical forces and baby steps of the seemingly emergent, struggling Recovery

March 11, 2011

By Mike Hinshaw

When the Fat Lady of the Great Recession finally sang, it was less an aria and more a whimper–so quiet, in fact, that when the National Bureau of Economic Research (NBER) declared the end of the longest recession since World War II, well, we wonder how many middle-class and poor folk believed it.  Almost certainly, very few have been enjoying any sort of “re-bloom” of the economy.

News and opinion pieces indicating that the Phat Lady of the Recovery may be warming up and even starting to hum seem to be linked to reports about the addition of nearly 200,000 jobs last month. But, as before, serious questions remain about the traction and velocity of a true recovery, one that would extend to at least pre-Recession levels.

Wouldn’t it be great if the powers-that-be would allow the economy to recover to say, mid-1990s levels?

NBER: ‘Just because the Recession ended’ …

Regardless, the NBER, the official declarer of such economic events,  has pegged the Great Slide to a beginning point in December 2007 and end-point of June 2009. According to a Sep. 20 piece at MSNBC, “The NBER said it chose the June 2009 date based on examination of data including gross domestic product, employment and personal income.”

The article also says, “Just because the recession ended 15 months ago, it doesn’t mean that the economy is healthy, the NBER asserted. ‘Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion,’ the NBER said.”

Of course, it would be really great to go back to the era in the 1970s before the modern siege on the U.S. middle class began, before the rise of the plutonomy really took off. More about the the “great wealth-divide” in future installments. For now, let’s look at the present situation with the economy, which begins the latest jobless reports. To set the stage, we must also keep in mind four crucial factors:

  1. the economy, overall
  2. historical rates of domestic bankruptcy filings (we’ll focus on personal, or “consumer,” bankruptcy),
  3. unemployment rates, and
  4. the rise of the modern credit card.

Bankruptcy jumped before the Great Recession–then jumped again

About two years before the official start of the Great Recession, personal bankruptcy filings spiked during the run-up to the so-called Bankruptcy Reform Act of 2005 (BAPCA), as shown in the following chart:

Personal bankruptcy rates: US Administrative Courts

Personal bankruptcy rates: US Administrative Courts

The trend for personal bankruptcies was on the upswing from 1995 into the first quarter of 2005, when the rates reached a new high–then spiked to even higher levels the next two quarters in a row.

Graphs show dramatic differences in bankruptcy rates of different eras

As shown in the next graph, also from the U.S. Administrative Courts, the overall trend was a slight rise from 1900 into the 1940s, followed by a decline and near “reset” in the post-WWII years. Then an inexorable climb began in the late 1940s, slowly gaining steam through the ’50s and ’60s, followed by a churning period in the early 70s–then BOOM! by mid-decade the overall trend spikes precipitously: the chart resembles a profile of middle America, the Great Plains on the left and the Rocky Mountains on the right.


Any correlation to inflation?

What can be inferred from this historical graph? Is bankruptcy like inflation? That is, as prices continually rise ,  is it to be expected that people will always fall behind, through time? Not according to the following chart, from Wikipedia, which says the image is from U.S. Labor Department:


No apparent correlation, there.

Credit-card companies versus ‘opportunists’

However, it’s useful to recall that credit-card company lobbyists spent millions and millions of dollars for about a decade trying to convince Congress to pass tougher laws against the “opportunists” who used the Bankruptcy Code to, in effect, game the system. Now, credit per se is nothing new: for instance, we’ve all seen the Western movies in which the kindly merchant extends credit to hard-pressed farm families who finally pay off the year’s groceries and staples when they sell their crops (and then start the cycle over again). At the other end of the spectrum was the “company store,” the bane of downtrodden miners, etc.

Brief history of the credit card

According to a what seems to be a pretty thorough article at CreditCards.com:

As far back as the late 1800s, consumers and merchants exchanged goods through the concept of credit, using credit coins and charge plates as currency.  It wasn’t until about half a century ago that plastic payments as we know them today became a way of life.

Early beginnings

In the early 1900s, oil companies and department stories issued their own proprietary cards, according to Stan Sienkiewicz, in a paper for the Philadelphia Federal Reserve entitled “Credit Cards and Payment Efficiency.” Such cards were accepted only at the business that issued the card and in limited locations. While modern credit cards are mainly used for convenience, these predecessor cards were developed as a means of creating customer loyalty and improving customer service, Sienkiewicz says.

The first bank card, named “Charg-It,” was introduced in 1946 by John Biggins, a banker in Brooklyn, according to MasterCard. When a customer used it for a purchase, the bill was forwarded to Biggins’ bank. The bank reimbursed the merchant and obtained payment from the customer. The catches: Purchases could only be made locally, and Charg-It cardholders had to have an account at Biggins’ bank. In 1951, the first bank credit card appeared in New York’s Franklin National Bank for loan customers. It also could be used only by the bank’s account holders.

Enter, stage left: Diners Club, then ‘revolving credit’

By 1950, the first Diners Club card was in use. “By 1951, there were 20,000 Diners Club cardholders. A decade later, the card was replaced with plastic. Diners Club Card purchases were made on credit, but it was technically a charge card, meaning the bill had to be paid in full at the end of each month.”
But by the end of the decade, “the option of maintaining a revolving balance was introduced, according to MasterCard. This meant cardholders no longer had to pay off their full bills at the end of each cycle. While this carried the risk of accumulating finance charges, it gave customers greater flexibility in managing their money.”
And by the mid-60s, the “general purpose” card was in place, and a group of banks joined forces to launch the InterBank Card Association, designed as a an open-loop system to process payments among like-minded competitors who offered consumer credit via their various cards.

Obviously, this does not purport to be a scientific, or even scholarly, examination of the interplay between bankruptcy filings and the rise of the modern credit card. On the other hand, the simplest explanations that account for the observed phenomena are often the most likely explanations.

Circumstantial evidence, these charts?

Now, we’re not discounting the roles of medical crises and job losses. But besides shopaholics who simply rack up too much credit-card debt for stuff they don’t need, we all know people who get in job-loss and medical jams and try to keep the wheel spinning by resorting to plastic.

If nothing else, it certainly is interesting how the milestones of the history of the credit card seem to correlate with that second graph.

Stay tuned: The discussion continues next time.


For bankruptcy basics, please see:

Bankruptcy FAQ

Introduction to Chapter 7

Introduction to Chapter 13

Recession ended in ’09–who knew?

OK, now it’s official: The Fat Lady of the Recession finally sang–in June of 2009.

So we were correct in calling the National Association for Business Economic’s (NABE) announcement premature. NABE, sourced in an Oct. 12 Reuters piece (with a headline saying the U.S. unemployment rate was 10 per cent) cited “survey of 44 professional forecasters,” 80 per cent of whom agreed the recession “has ended.”

NBER: ’18-month trough’

We didn’t believe it then–and don’t believe it, now. We can agree the correct agency (that is, not some “sound-alike” group) has made its official determination, as discussed here in the Sept. 20 announcement from the National Bureau of Economic Research (NBER). Regardless, even if the curtain has opened for the first act, the Phat Lady of the Recovery has not even left her dressing room. Most Americans are left squirming in the audience, nervously checking to see whether she’s even on the playbill.

And the NBER does address the grim prospects, describing the 18-month Great Recession as “the longest of any recession since World War II” (emphasis added):

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

Double-dip recession headed off–by definition

Somewhat chilling to contemplate, the next sentence reads simply: “The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007.”

Well, on the bright side, that officially means we don’t have to face the much-feared double-dip recession.

On the other hand, if what would have been the second dip does occur–thereby becoming the official next recession–will the interim count as the shortest recovery on record?

Oh, well.  Almost every competent observer agrees: it has been the worst financial crisis since the Great Depression.

From a Bloomberg News story in the Sept. 20 LA Times: “Marked by a collapse in housing and sub-prime mortgage lending that triggered a global meltdown in financial markets, the downturn trailed the 43-month Great Depression that lasted from 1929 to 1933, surpassing the 16-month contractions of 1973- 75 and 1981-82. More than 8 million workers lost their jobs as a result of the recession, a slump that may take years to fix.”

Census data show more in poverty

The announcement of the end of the recession follows recent new stories about rising U.S. poverty rates, based on census data. According to a Sept. 16 AP account at Bloomberg Businessweek.com, Census Bureau data show that 43.6 million (14.3 per cent) dipped into poverty in 2009, up from 39.8 million (13.2 per cent) in 2008.

So even though the Great Recession ended in June 2009, by the end of the past year more of us ended up as working poor (or not-working poor) than at any time in the past 50 years.

Some recovery.

Census data ‘all wrong,’ profs say

Of course, there’s always someone to read the leaves differently. In a CNN opinion piece published Sept. 20, a couple of professors explain how the Census Bureau’s report gets it all wrong. Sure, sure, it’s bad and all, and “[t]he most serious recession in a generation is taking a considerable toll on our nation’s poorest families.”

But, say the profs–

Census poverty figures are based on a narrow measure of income that often doesn’t accurately reflect an individual’s true economic circumstances.

That is, an individual’s income may put that person below the poverty line, according to the Census measure. But that measure ignores the on-the-ground effects of some of the most critical anti-poverty weapons, most notably the Earned Income Tax Credit, Medicaid, food stamps, and housing subsidies. Recently, for example, the EITC alone provided more than $40 billion annually to the working poor.

By excluding these benefits, the Census poverty figures fail to recognize that these programs lift many people out of actual poverty.

One suspects the professors may be confusing the map with the territory. Indeed, the first comment following the article notes, in part: “The people who wrote [this] obviously know nothing about ‘poverty’ and trying to live off of those so called ‘anti poverty weapons’. And obviously never done so. You tell them to ‘live’ off medicaid and food stamps and EITC for a year and see how much their poverty line changes.”

Other aspects of the professors’ argument are downright confusing. We’ll take this up next time and get into some other areas: foreclosures, a reported increase in the number of millionaires and one bright spot for U.S. consumers–the recent appointment of Elizabeth Warren to get the new consumer protection agency off the launchpad.


The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Bankruptcy FAQ

Introduction to Chapter 7

Introduction to Chapter 13