Foreclosures have been featured a lot in the news lately.  In one of my very earliest bankruptcy blogs, Dis Or Dat? Foreclosure Or Bankruptcy?, I pointed out that there is no "one size fits all" solution, and that designing exactly the right plan for each client's situation is what my work as an experienced bankruptcy attorney is about.  In other words, in working with some clients, it's best to create a strategy focused on avoiding foreclosure, and in other situations, that may not be the way to go.

In deciding which form of bankruptcy to file, one of the factors to consider is that a Chapter 13 bankruptcy offers individuals an opportunity to save their home from foreclosure.  A chapter 13 can be referred to as a wage earner's plan of bankruptcy, because it is meant for people who have regular income coming in that they can use to make installment payments to their creditors. To qualify for a Chapter 13 bankruptcy, a person's unsecured debts (such as credit card bills, utility bills, and medical bills) must fall within certain limits (the number is indexed for inflation, and it's now $336,900.)  Their secured debt (such as car payments and mortgage) also must fall within a limit (now $1,010,650).  The process is quite detailed, one reason it's important to seek expert legal counsel.

The point I want to bring out here, though, is that, by choosing Chapter 13 rather than other forms of bankruptcy, individuals can stop foreclosure proceedings on their home.  If they are approved for a Chapter 13, they will "cure" their delinquent mortgage payments, but they'll be able to do that over time (three to five years), all the while keeping up with the regular mortgage payments and saving the home.

A second reason some people choose to file a Chapter 13 bankruptcy is that this kind of bankruptcy has a special provision that can protect co-signers on consumer debt.  In some situations, this can be very important in protecting the assets of parents, spouses, or adult children. (In a Chapter 7 bankruptcy, by contrast, co-signers are not excused from liability.

Over almost twenty-five years of practicing bankruptcy law in Indiana, one important lesson I've learned is that people's financial lives tend not to be cut-and-dried; each situation has different factors that must be weighed in coming up with a plan that is the least damaging to the people involved, as well as to their families, business partners, and creditors.  Yet it's important to choose a plan that offers bankruptcy clients the greatest chance for rebuilding their financial lives.  Sometimes, after a long day in my office or at the bankruptcy court, I find myself sighing, "It ain't easy, being a bankruptcy attorney!"  But then I remind myself how rewarding I find this work, because I know I'm helping people get a fresh financial start.
 

Foreclosure pets, foreclosure fires, and now, foreclosure weeds - is there no end to the devastation brought about by home foreclosures?  As a consumer bankruptcy specialist in Indiana, I've been dealing with bankruptcy and foreclosure issues for decades, but I must confess I hadn't given enough thought to weeds.  Weeds make everything worse in a foreclosure.

By way of quick review, once a property is foreclosed, the Sherriff's Department holds an auction.  Meanwhile, until that Sherriff's sale takes place, whosever name is on the deed is responsible for the upkeep of the home. Overgrown, dirty yards are an eyesore in any neighborhood, negatively affecting the value of other homes nearby.  In some climates, the weeds dry out and become a fire hazard. In fact, fire officials warn that dry weeds should be kept at least fifteen feet from houses.

In cases where a builder files bankruptcy before selling all the homes in the addition, the homeowners who have moved in are stuck with the problem, and their homeowners' association may be stuck with the weed-whacking bill as well.

Some towns already have ordinances that allow officials to enter a foreclosed property and cut down overgrown weeds, I'm learning, and others are creating ordinances of their own as the problem gets worse.  Costs for the enforced weed-trimming are added to the taxes on the property, making homes even more of a challenge to sell.

Foreclosure of a home is certainly not something people would choose for themselves or for loved ones, but my experience over twenty-plus years as a bankruptcy attorney has taught me that in certain circumstances, foreclosure is actually the best option for a client (see Keeping Home, Sweet Home - It Depends!).  Abandoned pets, arson, weeds - these are all part of a foreclosure picture that could have been at least a little prettier.  If only people would face up to their situation and get help earlier in the process of undergoing financial difficulties, some foreclosures might be avoided, and there might be a whole lot less weed-whacking going on!

In my earlier bankruptcy blog, Affordable Housing At Mapleton Park, I highlighted an affordable housing project in the Fall Creek area of Indianapolis.  I explained that, as a bankruptcy lawyer in Indiana, I take an interest in all news that affects my clients.  I'm especially interested in news about two topics: housing and jobs.  You might even say those are the twin pillars of the rebuilding process after bankruptcy.  In my work with the bankruptcy system for the past twenty-plus years, I often find myself dealing with job loss and with housing loss through foreclosure actions.  As I help my clients rebuild their financial lives after bankruptcy, we'll be working on gains.  And that’s when those two factors will serve as keys to success: the availability of good jobs and the availability of affordable housing.  That's why I was glad to read in the North Indy Star last week that another affordable housing project is planned, this one in the South Broad Ripple area.

Carreau Design has already gained city land-use approval for an $18 million development project in the 4900 block of North College Avenue, to be called the Uptown.  The building will include street level businesses, with three stories holding 72 apartments.   Meanwhile, a neighborhood association has been organized called College Avenue Neighborhood Development Organization - CAN DO! for short.  Resident Susan Smith, who helped get this organization together, says, "We aren't talkers.  We're doers."  What a great motto that is for redevelopment in general, don't you think?  Those words, and this Uptown project really resonate with me as a bankruptcy lawyer.  After all, isn't that what bankruptcy is designed to do?  Redevelop people's lives, that is.  I'm proud to say, together with my bankruptcy clients, we CAN DO that!

In one of my earlier blogs, Money And Emotion Mixed In Bankruptcy, I discussed the fact that, in the course of almost twenty-five years guiding people through the bankruptcy court process, I've learned that debtors tend to have a lot of negative feeling going on.  Some of this negativity is caused by the financial problems they're facing, but often it's made worse by myths they've heard about bankruptcy, things that simply aren't true.  In that blog, I emphasized that fear, self-blame, and even despair are normal and natural emotions to have during a time of great financial stress.  Yet the only emotions that are going to be useful during a bankruptcy are hope and resolve.  There are things to be done, actions to be taken to handle matters (of course I'm there to help), and only the clients' inner strength, resolve, and focus can drive those actions.

The other day, in a children's story collection, I found the most wonderful tale.  This story brings out the very point I was trying to make in that blog. (In fact, I believe I'm going to have everyone who's considering filing bankruptcy or who is threatened with foreclosure read this story.)  It's called The Magic Ring, and it takes place in the time of King Solomon. In the story, Solomon hears about a ring that has a magic quality: the ring makes a sad person happy and a happy person sad.  The king gives his chief general six months to locate the ring. The general travels far and wide, asking goldsmiths, silversmiths, merchants, sailors, captains of caravans from China and India - no one has heard of such a ring. Finally, an old man calls out to the general, and gives him a plain gold ring on which four words are inscribed. 

The moment Solomon reads the words on the ring, he, who has all the riches in the world and all the wisdom in the world, becomes sad, realizing how circumstances could change his life in an instant.  Yet Solomon realizes that the same four words could serve as tremendous comfort for people going through troubled times. Here's what was written on the ring: "This, too, shall pass."

Over the years, I've talked with literally tens of thousands of people, usually at the most trying times in their respective lives.  Experience has taught me that people are best off dealing with their own feelings rather than suppressing them.  At the same time, I know debtors need to make some very important decisions so that they can get through the bankruptcy process and move on with their lives.  Since I'm a bankruptcy attorney in Indiana, the focus of my work is helping people take informed action to improve their financial circumstances.  I think remembering the words engraved on Solomon's ring might help my clients- and me - keep matters in perspective. However bad the stuff is that's going on right then - this too shall pass!

Always alert for news that can be of use to my Indiana bankruptcy and foreclosure clients, I was very interested to learn about a tax provision spearheaded by Indiana Representative Baron Hill and Indiana senator Evan Bayh as part of the new housing bill.  In my earlier bankruptcy blog, Housing Bill Offers Help Avoiding Foreclosure, I explained the national housing bill just passed by Congress, which focuses on first time home buyers and on refinancing of mortgages.  In working on the tax break as part of the housing bill, Bayh and Hill wanted to help Hoosiers who are coping with declining home values and rising property taxes by adding a tax break for property taxes paid..

In order to understand this tax break, you need to know that up until now, only those folks who itemized their deductions on their federal tax returns were able to take a deduction for property taxes paid.  That meant that those people who claimed just the standard deduction couldn't get any advantage from having paid property tax.   Under this new provision, non-itemizers can deduct up to $500 of their property tax from federal taxes (families can deduct up to $1000).  It may seem like a small thing, but actually almost one million Indiana homeowners will be able to benefit from this break.

I talk with thousands of people in my bankruptcy law offices in Anderson, Bloomington, Columbus, and Indianapolis.  For some of these people, the new tax break will be "too little, too late".  In other words, the tax break will not provide them with enough savings to help them avoid foreclosure on their home or to stave off bankruptcy.  The way I see it, though, any financial benefit that can offer help to homeowners is an effort in the right direction.

Often, as part of my work as an attorney focused on consumer and small business bankruptcy, I find myself discussing a client's employee benefits from work.  Since I do my very best to keep up with developments in every area that can impact my clients, I read a journal called Employee Benefit Adviser. The July issue of this professional journal carries a very wise piece by Editor-In-Chief Robert Whiddon, called "Hope Is Not A Strategy". I was immediately attracted by the title, because, as I've stressed in so many earlier bankruptcy blogs, many small business owners keep hoping things will turn around for them.  Meanwhile, they put off putting some strategies into place that can help protect their assets in the event their business simply cannot survive.

I like Whiddon's attitude towards employee benefit planning and the advice he's giving employee benefit advisers: "We all fall into the hope trap.  We shouldn't anticipate or plan for failure, and it's important to tackle life each day with a sense of optimism.  But do we have specific plans to achieve the things we want to make happen?  'Sort of' and 'maybe' are too close to hope for my tastes."

I found these words particularly apropos for both my individual bankruptcy clients and my small business bankruptcy clients in Indiana.  The financial troubles that lead to bankruptcy and/or foreclosure on a home or business property very rarely happen overnight.  In fact, after almost twenty-five years of dealing with clients' personal and business finances through recessions and periods of booming growth, I find that it's usually a combination of factors, piling up over months and even over a period of years, that finally become too much for clients to handle on their own. 

The earlier in the process that I enter the picture as a bankruptcy adviser, the greater the number of options will remain open for us to use.  Too often the result of just waiting and hoping, I find, is that troubles tend (both literally and figuratively) to compound.  Even if bankruptcy or foreclosure becomes inevitable, those clients that began planning with me at the first signs of trouble ended up with more satisfactory results.
 
As Whiddon so aptly points out, hope is not a strategy.  The funny thing I've found, though, is that having a strategy in place ahead of time really does offer hope.

As a consumer bankruptcy specialist, I always do my best to stay on top of the news - world news, national news, and particularly news that directly affects citizens of our state. There's certainly been no shortage of important news lately.  Today I want to highlight two stories that may seem like "tidbits" in the big picture of things, but I think they could be big for Hoosiers, and especially favorable for my Indiana bankruptcy clients.

On Thursday, July 24, Step #2 kicked in.  I'm talking about the three-step minimum wage hike.  The federal minimum wage jumped 70 cents to $6.55 an hour.  Big yawn, you think?  Think again.  First of all, last summer's Step #1 increase from $5.15 an hour was the first increase in more than ten years.  True, not very many workers earn only minimum wage (only 36,000 in all of Indiana, according to the Bureau of Labor Statistics).  Critics say employers will simply hire fewer workers or hire illegal ones.  What I see, though, is a general trend towards higher wages that favors the more educated and better-trained workers.  This trend will work in favor of bankruptcy or foreclosure clients who are trying to make a fresh start and keep up with debt repayment plans.

The second tidbit comes in the form of kudos for our Hoosier state.  For the first time in history, Indiana has earned a Standard and Poor's top credit score rating.  Given the flood damage and housing problems and job layoffs we've had, this is just an amazing accomplishment.  As a state, we will save millions of dollars a year in bond interest.  This will help our public school systems, in addition to helping speed up paying for the Lucas Oil Stadium, and it basically means more money can be devoted to all programs run by the state.  Indiana, by the way, was one of only nine states to earn this high a rating. 

I've said this many times before, and it bears repeating:  The most important chapter of any bankruptcy story is the sequel, the part where people rebuild their lives.  I'm no economist (as I've also noted before), but I can see that both these two news tidbits could mean big (and good) things for my bankruptcy clients in Indiana.
 

At the end of last month, I was happy to learn, the much-talked-of housing bill was passed by Congress. As a bankruptcy lawyer in Indiana for more than twenty years, I deal every day with the issue of foreclosure.  As I brought out in Keeping Home Sweet Home - It Depends, for some clients who simply bought "too much house", it might make sense for them to lose their home and downsize, perhaps arriving at a compromise with their lender to accept a "deed in lieu of foreclosure" or doing a "short sale".  For other clients (those with children for whom it's important to stay within a certain school district, for example), it's better to make every effort to preserve their present home.

This new bill does several things, and I'll mention just three of the big ones here:
a) It provides the Federal Housing Administration with $300 billion to go towards offering fixed rate mortgages to debt-ridden homeowners.  b) It offers tax breaks to first time home buyers, including low-income buyers.  c) It gives states $11 billion in tax-free bond backing to make low interest loans, to build low income rental housing, and to refinance subprime mortgages.

Bankruptcy and foreclosure are closely related, and on both, I always advise asking for professional help at the first signs of trouble.  The new housing bill, particularly in light of the fact that President Bush dropped his earlier opposition to it, means problems are being addressed.  And that's been the core of my work for the past twenty-plus years - addressing problems head-on, helping clients create a strategy, and helping them begin the process of making a fresh financial start.

When it comes to jobs in Indiana (a subject in which I have an intense interest as I help my Indiana bankruptcy clients rebuild their finances), the president of the Fishers Town Council, Scott Faultless, hit the proverbial nail on the head:  "Businesses are looking to come to a site where they can find employees with the requisite level of education and the ability to get additional education close by" (Indianapolis Business Journal, July 14-20). 

The past couple of months, I've been writing in these bankruptcy blogs about new jobs that are being created all over Indiana.  The crucial thing, though, for people who've suffered job layoffs and are trying to avoid bankruptcy and foreclosure, as well as for people emerging after bankruptcy and trying to get their finances back on track, is that they must be able to qualify for these newer, high skill/ high tech jobs that are coming to our state.  I'm especially thinking of the folks who filed Chapter 13 bankruptcy, taking on a three to five year repayment plan.  Well-paid jobs are essential if these plans are to succeed.

Fishers, Indiana just hired Mark Long, who built I.U.'s Energy Technology Center, to spearhead the development of a new Research and Technology campus in Fishers.  Meanwhile Indiana has been adding bioscience jobs faster than all other types, in fields including medical devices, agriculture, medical research, and pharmaceuticals. Indiana now has almost 50,000 bioscience jobs.

The challenge will be to fill those jobs, not only with new graduates, but with retrained mature employees from manufacturing and other industries.  Training will be the byword for our state.  Training will certainly be the key for many of my Indiana bankruptcy clients as well as for those I'm helping avoid bankruptcy or foreclosure.

My banker friend R. (who shared the sad story about the Oregon homeowner who'd waited until it was too late to get help avoiding foreclosure) told me his thoughts, as a real estate banking professional, about that story and about the "mortgage mess" in general.

"In this case, the reason the man got behind on his mortgage isn't the important thing. People tend to want to look for blame.  I think it's almost ingrained in us to do that now.  It doesn't matter if the man originally got his mortgage by looking only for the lowest rate and not seeking the advice of an experienced mortgage lender.  It doesn't matter if he lied on his application to inflate his income.  It doesn't matter if his mortgage lender got him approved for a mortgage that was high risk just to make a commission.  I don't know if any of those things happened and frankly don't want to know.  The bottom line and lesson here is that the homeowner waited too long to get help, just hoping that things would 'work themselves out'. I don't know this individual well, but it's pride, in my experience, that has been the reason people don't seek help."

"It's important to remember", added R., "in this mortgage environment, banks really don't want to own your home.  There are options to help people in trouble, and it's extremely important to get out in front of the trouble immediately.  It could be the difference between losing or keeping your home."

My goodness, R.!  You must have been reading my bankruptcy blogs - I couldn't have made the case any better than that!

Although my bankruptcy law offices are all in the state of Indiana, I like to stay on top of bankruptcy, foreclosure, and consumer debt news in other parts of the country. R., my banker friend from Portland, Oregon (the one who told me the story I shared in West Coast Story About Blockbuster Builder Gone Bankrupt) told me another true story, this one about a foreclosure that might have been prevented, but wasn't.

R. received a call from a client saying a neighbor of his needed R.'s help and advice. The neighbor then got on the phone and explained to R. that he'd be losing his home to the bank in one week.  The house had been appraised at $650,000 or so, and the mortgage balance was just under $400,000.  R. began calling around to his own bank people and other lenders, but a loan package couldn't be put together quickly enough.  In fact, had there been just two more working days, a private temporary loan might have been worked out and the foreclosure might have been postponed long enough to obtain permanent refinancing.  The worst of it is that, in Oregon, the owner loses his equity in a foreclosure.  By waiting too long to get help, this debtor lost all his options, and also the equity he'd built up in the home..

As I emphasize in many of my bankruptcy blog posts (see Going, Going, Gone On Home Foreclosures), during the twenty-plus years I've practiced bankruptcy law, I have been urging folks to get professional advice as soon as their circumstances take a downward turn.  The earlier I can help clients explore different options and negotiate with their creditors, the more options will be open to them.

As of the beginning of this month, all but one of the 38 Indiana counties served by my Indiana bankruptcy law offices have been added to the federal disaster declaration list. This is one of those bad news/good news things I am so used to in my line of work.  What I mean is that, when clients come to see a bankruptcy attorney, they're wrestling with bad news, not good.  Nevertheless, it's good news that they've sought professional help, so we can get to work on them making a fresh start. I think the news about the disaster list falls in the same category. Obviously the flood damage is very, very bad news.  The fact that help is available for eligible individuals and businesses to recover from the effects of severe storms and flooding, though, is the beginning of something good.

The latest two counties to be added to the list are Hendricks (Danville area) and Tippecanoe (Lafayette areas).  Officials from the Indiana Department of Homeland Security and the Federal Emergency Management Agency (FEMA) made the announcement on July 1st.  Counties already included are Adams, Bartholomew (which I mentioned in my blog on Columbus, With HUD Help, Columbus Homeowners Hit By Flooding Might Avoid Foreclosure), Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence, Marion, Monroe (Bloomington area), Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Vermillion, Vigo, Washington, and Wayne.

As a personal and business bankruptcy attorney in Indiana, it's vital that I help my clients locate and then navigate all the resources available to them to avoid foreclosure, negotiate with creditors, and then, if bankruptcy is inevitable, select which class of bankruptcy filing is best for their situation.  Many Indiana residents were under severe financial pressure even before the flooding, due to some combination of the usual factors that lead to bankruptcy (medical expenses, divorce, job layoffs, housing crisis, and tax liens).  Storm damage to homes and business in these counties only added to the problem. But apparently help is not merely on the way - it's here!  My task is to help people find and use that help. 

Being a bankruptcy lawyer in Indiana is all about help - giving help and finding help.  Lately, Indiana homeowners in many of the 38 counties I serve have been needing all the help they can get.  Columbus, in Bartholomew County, is one of the four cities in which I have bankruptcy law offices, and that area was one of the hardest hit.   In an earlier blog, For Flood Victims, FEMA Aid Can Help Without Hurting In Bankruptcy, I talked about the special aid offered through FEMA (Federal Emergency Management Agency), through the Small Business Administration, and through the Indiana Bureau of Motor Vehicles.

Helping clients avoid foreclosure on their home (whether they are renters or owners) often plays a large part in the assistance I offer through my four Indiana bankruptcy law offices. It's important for me to be familiar with all the resources available to clients facing possible foreclosure.  It was welcome news to me, therefore, when HUD (U.S. Housing and Urban Development) announced support for homeowners and low-income renters forced from their homes during the severe storms.  There are several varieties of help offered, but one of the most significant is that HUD is granting immediate foreclosure relief by granting a 90-day moratorium on foreclosures of FHA insured home mortgages.  HUD also urged loan servicing companies to offer loan modifications, re-financings, and to waive late charges.  What's more, HUD has a loan program for rehabbing homes that are salvageable. These relief efforts are being offered in almost all the counties I serve, but Columbus was certainly one of the hardest-hit , with hundreds of homes and dozens of businesses severely damaged or even totally destroyed.

Emerging from bankruptcy always involves rebuilding of financial lives.  Now, because of the flood damage, many of my clients will be involved in rebuilding of another sort as well.  By helping my clients locate and take advantage of all the different flood assistance resources, I'll be involved in their rebuilding process on both counts!

When a person gets behind in paying debts, creditors begin to take action. And, when that happens, as I've warned many times in earlier bankruptcy blogs, it's time for the debtor to take action, too.  Telephone calls at home and at work from creditors could be just the beginning.  Foreclosure proceedings may be started against a debtor's home.  Automobiles may be repossessed, along with other property.  If creditors obtain a court order they may garnish wages, put liens on property, even seize bank account.  Working with a bankruptcy attorney can help avert a good deal of the ensuing pain, provided steps are taken before matters become worse.

Despite some myths, most bankruptcies are very private affairs. The rare exceptions tend to involve well-known local business leaders or political figures.  These unfortunately cases serve as a reminder of how business failures can sink even the most experienced of entrepreneurs.

Sometimes the first episode of a story is a Chapter 7 business bankruptcy.  Then, sometimes, a personal bankruptcy filing will follow, especially if the business was involved in lawsuits and ends up losing in one or more of those.  In the background there might be tax issues compounding the problem.  With wages garnished to pay back taxes, it can be very difficult to catch up and begin to rebuild financially.  Although, as I explained in my earlier blog, It's The Business, Stupid!, corporations and LLC's can file bankruptcy without the owner himself filing, the cumulative effect of many business debts and back taxes owed can resulted in personal bankruptcy even for some very once proud business personalities.
As a bankruptcy attorney in Indiana specializing in both small business bankruptcy and personal bankruptcy, I'm saddened but not surprised when I encounter, in my work with clients,r the sequence of events I just described    Almost all small business owners' personal and business finances are closely intertwined.  In fact, a 2005 study published in the California Law Review reveals that more than 20% of personal bankruptcy filings are business-related.  The bankruptcy system is designed to provide a safety net and a fresh start in situations like this. For a free capitalistic system to work, entrepreneurs need to be willing to take risks.  The fact that there is a "last resort"  in place when the best efforts fail serves as encouragement to do just that.

As a bankruptcy lawyer with one of my four Indiana offices located in the city of Anderson, I'm always alert for news affecting that town.  Anderson has been particularly hard hit by the General Motors pullout, which began in the mid-seventies and accelerated in the 90's, eliminating more than 20,000 jobs.  Many downsized workers, some who faced medical illness along with job loss, ended up filing bankruptcy.  Retail establishments of all types suffered, because there was little money for customers to spend; the entire area was in economic blight.   Some familiar symptoms included increasing numbers of people using expensive debt consolidation services and payday loans.

Today, slowly but surely, Anderson is rebuilding, in large part due to a project called the Flagship Enterprise Center, a collaboration of Anderson University and the City of Anderson.  Flagship is a business incubator and accelerator, using engineers and other experts, many once employed at GM plants and research facilities, to help "host" new companies.  These companies include automotive firms, but also software, medical equipment, and other product lines.  Thirty of these fledgling companies are still housed at the Flagship Center itself, which is off Exit 22 of the I-69 highway.

As a bankruptcy attorney in Indiana, I know how crucially important it is for our state to create new, good-paying jobs.  For debtors emerging from bankruptcy, their getting back on track financially will depend in large part on the availability of jobs that can in turn provide steady, decent wages.  One of Flagship's functions is to help companies recruit and train workers in the newer technologies and businesses that are replacing the old manufacturing plants.  Increased hiring by these new enterprises in turn will mean more money being spent in local stores, beauty salons, restaurants, movie theatres, and furniture shops.  I hope that, over time, employment growth will mean fewer people buying groceries using credit cards or turning to payday loans to tide them over to the end of each month.  I expect it will mean fewer foreclosures and more people buying health insurance, opening bank accounts, and investing in IRAs.   In Madison County, Indiana, as the Broadway song goes, "This could be the start of something big."

You might imagine that I, as a consumer bankruptcy specialist in Indiana, spend most of my time involved in bankruptcy court.  But a good part of my work with clients involves foreclosure issues.  Often I'm helping to negotiate settlements between homeowners and lenders, using strategies such as short sales, deeds in lieu of foreclosure, or some form of mortgage refinancing.  I've been doing these things for almost twenty-five years.  But, because of the severe mortgage and real estate crisis of the last two years, I'm involved more and more often with renters who are losing their home to foreclosure.  In many of these instances, even before the housing crisis, a family or an individual was already financially squeezed for one or more of the usual reasons: job layoff, medical expenses, or divorce.

For home renters, discovering (often in very sudden fashion) that their home's owner is now a bank or investment trust that wants them out, it's a very difficult situation.  Even if they're allowed to stay in the home for now, the owners, stuck with properties they can't sell, very rarely perform needed repairs or take care of the utility bills.  At any time, the renters could be notified that they need to move.  Tenants who don't obey immediately could be served an eviction notice, and, with one of those on the record, it will be very hard to find another landlord willing to rent to them.  I'm learning that this very situation is a lot more common than I realized - according to one statistic I read, more than one third of all foreclosures nationwide are rentals.

Do renters have rights?  I'm finding out more about the issues.  Leases are typically for one year.  That means, in most cases, the mortgage predates that lease.  As long as 30 days' notice is given, the renters have no legal right to remain, because the rule is that foreclosure nullifies a lease if the mortgage was in place ahead of the lease.  So, what can renters do?  They could take the owner to small claims court, demanding reimbursement for moving costs, expenses for finding a new place, etc.. 

The irony about all this is that the smartest move on the part of the bank or real estate trust who has taken over ownership would be to actually keep the tenant in the house just as long as possible while the place is being listed for sale.  Empty houses tend to drop in value without upkeep (often vandals target empty houses, too).  I advise renters to turn the tables, asking the new owner for rent concessions in exchange for sticking around and keeping the house in decent shape.  Foreclosures seem to be hurting everybody….

Harvard's most popular class isn't on law or business; it's a class on happiness.  Tal Ben-Shahar, author of the book "Happier", teaches the positive psychology course, based on research done by Harvard in partnership with the University of British Columbia. The studies show that, unless people are so extremely poor that each extra dollar would make an enormous difference in their lives, getting more money generally doesn't lead people to have more positive feelings.

One of many books written on the subject, Sonya Lyubomirsky's "The How Of Happiness" explains this effect by observing that people tend to be made happy by experiences rather than by possessions.

In my work as a consumer bankruptcy specialist for longer than two decades, I've made my own study of the mutual effects of money and happiness.  It's obvious that, for individuals who are consulting an attorney in my field, that experience is hardly one of the high points of their lives.  In fact, many are near-exhausted from stress, nearing the last stages of a long struggle to "keep things together" for themselves, their families, and, often, for their businesses.  As I described in an earlier blog, Bankruptcy Blog Shares Message With The Oprah Show, I try hard to convey two messages to my clients: "You are not alone!" and "Help is here!"

It's interesting that the British Columbia/Harvard study was mentioned in last month's issue of the Journal of Financial Planning.  College students surveyed ahead of the study thought extra money would indeed add to people's happiness.  But the study itself revealed that people who shared the money with others proved to be happier than those who spent it on themselves.

My own "fix" on these study results is this:  Many bankruptcy clients suffer from feelings of embarrassment and shame as we discuss foreclosure, bankruptcy, and business failure.  These clients are focused on their own feelings.  Everyone else, they think, will pity them or look down on them, so they feel isolated from others.  I know that focusing on others will help them heal.  And, while these clients have no extra money to share with others at this point in their lives, they can share their time and their affection and friendship.  I try to turn their attention away from themselves and their immediate problems, and have them focus on the fresh start they'll be making towards their future as they emerge from bankruptcy.

You know how some of the jokes in Reader’s Digest aren’t very funny, but are still very true?  Here’s one that has some humor to it, but, more important, I think it offers some very good financial advice.  This advice is certainly well-suited to my Indiana bankruptcy clients as they complete the bankruptcy filing process and begin to rebuild their financial lives.  In some cases following this very good advice could help clients stave off foreclosure on a home or even help them avoid bankruptcy.  Actually, this is advice all of us should follow.

 Here’s the joke:  A rich, miserly old man on his deathbed informs his wife he wants to take all his money with him.  He instructs her to put all his money in the casket with him when the time comes.  At the funeral, the widow’s best friend sees the widow put a metal box in the casket.  “Surely you didn’t put the money in there!” exclaims the friend.  “I did promise him I would”, said the widow. “So I got the money together, deposited every penny in my account, and wrote him a check.  If he can cash it, he can spend it!”  (See what I mean about the story not being very funny but, at the same time, having a lot of truth to it?)

In working as the attorney for tens of thousands of bankruptcy clients around the state of Indiana over a period of two and a half decades, one thing I’ve noticed is that many of them hadn’t been using a checking account at all, but were instead paying for expenses and purchases with credit cards, debit cards, or cash.  Nothing wrong with that, but I can’t help thinking that, no matter how you pay for things, it would be a good idea to keep a “check register” for each credit or debt card, and even for the cash you allow yourself to spend each month.  Having two or three small notepads (one for each account) small enough to fit into a man’s pocket or a lady’s purse would do the trick.  The big thing about noting down each expenditure is that it reminds you how much you’re spending.  That way, you’re less likely to go over your limit.. Say you have a Mastercard with a credit limit of $3000.  Every time you use that card, subtract that amount from your “balance”.  When the MC statement comes and you’re paying it (hopefully all of it, but at least some) with a check or money order or bringing cash to the bank, cross off all the charges you’ve covered in your little MC notepad. That way, you always know where you are with your spending. 

Remember, the Indiana bankruptcy system is a safety net to help people who’ve been overwhelmed by events beyond their control (job loss, prolonged or disabling illness, divorce, natural disasters) get back on their feet.  Once that’s achieved, just like with all of us, people have to learn to practice responsible financial management. So the rule in Reader’s Digest is really a good one:  If you can cash it (meaning you have enough money to pay for it, even though you you don’t have it on you in cash), you can spend it.  Otherwise, maybe hold off on that purchase until you’ve saved up for it….. Truly, I'm not joking.

As I brought out in an earlier blog, Foreclosures Hit Even The Famous, even folks who were at one time very successful and wealthy have fallen on hard times.    I’ve been practicing bankruptcy law for close to twenty-five years, and one thing I’ve found is that, by the time clients come to see me to try to stave off foreclosure or to file a bankruptcy case for themselves or for their small business, they are under considerable strain.  They’re not feeling either healthy or energetic, and one of the reasons for that is they haven’t been sleeping well.    Having counseled with tens of thousands of debtors, I have a lot of empathy for the enormous burden of worry people feel, knowing that it’s keeping them up at night and hurting their health. 

That’s why I was very interested in a May 23rd feature in the Travel section of USA Today about hotels.  Marketing managers at hotels are coming to realize that, while a hotel can have great amenities, what they’re really all about is a great night’s sleep. Several resort hotels and spas are focusing on helping their guests achieve just that.  At a special suite at the Hotel Monaco in Chicago, guests can find neck pillows, bamboo sheets, sleep masks, a gentle waterfall, and a sound machine.  The Four Seasons Hotel Westlake Village near Los Angeles launched a “Sleep Well” program, with acupuncture, meditation sessions, ear plugs, foot warmers, and even teddy bears.  SpaTerre at La Playa Resort in Naples, Florida, adds a sunset beach ritual and relaxation massage sessions.  The manager there advises guests to lock their cell phones in the safe and check email no more than once daily.  At Kimpton’s 70 Park Avenue hotel in New York City, guests can call a “pillow librarian” to request one of 15 different types of pillows to induce rest, such as one filled with buckwheat hulls that’s supposed to stimulate acupressure points.

As I work with my clients, preparing to guide them through the bankruptcy court process or helping them negotiate with home lenders and other creditors, I help them understand the options that apply in their situation.  The clients, in turn, need to make some very critical business and personal decisions.  They’re trying to absorb new terminology: Chapter 13, Chapter 11, Chapter 7, short sales, deed in lieu of foreclosure, on and on.  At the very simplest level, clients need to locate and organize all their financial records.  In short, there’s a lot to handle. If ever there was a time for focus and sharp thinking, this is it.  But, without sleep, nobody can get focused.

As a bankruptcy attorney for so many years, I know that when it comes to bankruptcy, it’s the “Now what?” stage that really matters.  That’s the part where the clients put the legalities of bankruptcy behind them and begin to rebuild their lives.  But, in order to get to that more hopeful “Now what?” stage, my clients must muster all their strength to get through the “Now”.  Perhaps, along with all my law books, I should stock a “pillow library” in each of my four bankruptcy law offices.

I've mentioned often in this bankruptcy blog that the three main factors leading to bankruptcy are extended medical illness, divorce, and job loss.  The combination of two or more of these things hitting a family at the same time can destroy even carefully laid financial plans.  In recent weeks, with actual flooding caused by thunderstorms and tornados in many parts of Indiana, many Hoosiers' already shaky finances have been totally devastated.  Although, as a bankruptcy lawyer in Indiana, I have been helping clients for more than two decades, I can hardly remember a time more difficult than the one we're experiencing right now.

Churches and synagogues are donating food, clothing, and household supplies.  Corporations are contributing money.  President Bush has approved many counties for eligibility for federal assistance, and more approvals are expected.  What this means is that homeowners and business owners, and even renters can apply for grants to pay for temporary housing and for repairs. 

Since my Indiana bankruptcy law practice includes 68 counties, I was encouraged by the speed with which this federal assistance has become available.  At the same time, I know that many individuals and owners of small businesses were already experiencing a severe financial squeeze because of the three factors of medical costs, divorce, and job shakeups.  The additional burdens created by the storms and flooding might prove, at least for some, just too much to withstand. 

Folks who planned to make use of a short sale of their home or to negotiate a "deed in lieu of foreclosure" strategy (see my earlier blog, Going, Going, Gone On Home Foreclosures) will not be able to offer their property for sale or to satisfy the lender until the repairs on the property are completed.  In short, many of the ways in which I help clients "buy time" to make decisions about foreclosure, personal bankruptcy, or business bankruptcy will not be feasible when property has sustained extensive damage or worse, been completely destroyed. 

It is very, very sad for me to see people and businesses being so hard hit.  But I know that my sympathy is not the most important thing my clients need from me now. In a way, my situation is very much like that of a doctor who feels enormous empathy for his or her patients.  But the doctor must focus, not on his or her own feelings, but on administering first aid, and then on working to facilitate the healing process.   I know that as a legal and financial adviser, there are many strategies I need to discuss with my clients.  There are important steps they need to take and important decisions they must make in order to get their finances back on track.  And, as with first aid, some of these steps need to be taken right away.  Once a plan is in place, I can help my Indiana clients "work the plan" and "dry out after the flood".