America has become addicted to reality shows but are these shows truly set in reality or are they helping to bankrupt our souls and bank accounts? The shows are fascinating from a psychological point but nothing more.

When growing up and speaking to anyone who watched wrestling the unspoken rule was that everyone knew that it was not real but you did not speak about it. Much like our favorite seasonal fictional characters that visit us throughout every holiday season. But reality shows have taken our society to a whole new low. Many of these families and individuals are not only spiritually bankrupt but they are financially bankrupt from not facing REALITY.

Every week I hear two quotes in my head. “Live like no one else so that you can live like no one else”, Dave Ramsey. The other is from one of my Chapter 7 Trustees. If anyone, absolutely anyone, comes before Gary Barnes with a negative budget, even if it is $1, his voice lowers and he will lean forward an ask; “folks you are here to get a FRESH START and you cannot obtain that fresh start if you keep spending more than you make.” When he follows up with the inquiry about what they are going to do to change the budget so that it is in the black instead of the red, he usually receives a blank stare from both the attorney and the debtor.

Why does Mr. Barnes ask this question? He wants to ensure that the debtor is set in reality and will tell them “that if you do not change you spending habits you will be back before me in the future.” Bankruptcy was designed to give people a fresh start when circumstances beyond one’s control caused their finances to spin out of control.

The new wave of reality shows was supposed to give us a picture of how others lived their lives. It is the evolution of shows such as Lifestyles of the Rich and Famous. But as with many things in the media what is being portrayed is not true reality. You need to look no further than the Real Housewives series.

At first glance these women appear to have the perfect life, home and family. Many viewers compare themselves to these women and set their own bar of success accordingly. The reality is that many of these are financially struggling, getting divorced, do not have healthy relationships with theirs kids, facing foreclosure and/or bankruptcy.

The reality is, if you spend more than you make you will go broke. The reality is,  if you lie to the bankruptcy court you can be charged with a federal crime. The reality is, most of us have to work to pay our bills. The reality is, that some cannot afford the luxuries that others can afford. The biggest reality is, that at the end of the day if you are always trying to keep up with Jones, Kardashians or the Housewives you are not living your own reality.

Remember that knowledge is power and the more knowledge you have about living within a budget the more power you will have to live within your personal reality.

Earlier this month, I posted a rebuttal to a Forbes online article written by a tax lawyer named Stephen Dunn.  Mr. Dunn opines that usually Chapter 7 is not the best option for debtors facing severe financial hardship.

Noted consumer advocate Gerri Detweiler saw my Bankruptcy Law Network post and invited me to guest post a rebuttal for publication on Forbes online.  My colleagues in the Bankruptcy Law Network contributed to this guest post and together we demonstrated the flaws in Mr. Dunn’s arguments - point by point.

Now, to quote Ronald Reagan – “there you go again!”

In his June 17 opinion piece, Mr. Dunn restates his conclusion that “bankruptcies often do more harm than good.”  Once, again, however, Dunn puts for absolutely no evidence whatsoever to support his contentions.  In his first opinion piece, Dunn relied on anecdotal evidence – one case where involving tax debt where he was the debtor’s counsel and a second case involving his son, an attorney for a bank suing a failed business owner on a guarantee.

This time, Dunn doesn’t even bother to cite a real case – he simply makes up an example to support his conclusion.  More troubling, his understanding about how a consumer bankruptcy works in the real world is simply wrong.  He seems to be reading talking points provided to him by credit card and banking industry lobbyists.

I certainly hope that Mr. Dunn does a better job conjuring arguments when he is representing real clients.  Where is the evidence?  Are there any statistics or studies showing that a bankruptcy filing has a deleterious or a neutral effect on a bankruptcy filers future financial prospects?  Should we draw conclusions about the need for Chapter 7 based on Mr. Dunn’s imagination?

Obviously, everyone is entitled to his opinion.  I could take the position that antibiotics do more harm than good in every case, or that there is a vast government conspiracy to suppress information about alien invaders in Roswell, New Mexico.   However, putting flawed opinions in print simply does not make them true.

In my experience – and this involves 23+ years actually representing real people in Chapter 7 and Chapter 13 filings in Atlanta – I can only think of a handful of cases where the decision to file was even a close call, and even fewer where a client came back for a second Chapter 7 years later.  To the contrary, when I hear from old clients it is usually when they tell me that recovering from bankruptcy was far easier and less painful than they had expected.

I also find it strange that Mr. Dunn does not talk about Chapter 13 bankruptcy at all.   It makes no sense at all to talk about “consumer bankruptcy” without mentioning Chapter 13 since  reorganizations make up a significant percentage of total consumer filings.

If there is any academic or investigative proof that “usually” Chapter 7 is not a debtor’s best option, let’s see it.  If such proof exists, I would be first in line to encourage Congress to consider changes in the law to better effectuate the stated goal of bankruptcy – to allow the honest but unfortunate debtor an opportunity for a fresh start.

In the meantime, I hope that the thoughtful and intelligent readers of Forbes online see the embarassingly weak reasoning used by this columnist who has decided to write about a topic far beyond even the penumbra of his area of expertise.

This week’s Forbes magazine contains an editorial by tax lawyer Steven J. Dunn entitled “Consumer Bankruptcies do More Harm than Good.”   Mr. Dunn acknowledges that he is not a bankruptcy lawyer (although he knows a few bankruptcy lawyers – including his son, who once represented a bank in a lawsuit against the president of a company who signed a personal guarantee).

Mr. Dunn then proceeds to discuss his concerns with Chapter 7 (which he mislabels “consumer bankruptcy” – and he thereafter ignores Chapter 13 relief, which is, of course, another type of “consumer” bankruptcy).

With these obvious qualifications and definitions established, Mr. Dunn offers readers the following nuggets of enlightenment about the uselessness of bankruptcy:

• Creditors rarely sue consumers over debts
• If a creditor does threaten to sue, the consumer should threaten back to assert his defenses, such as breach of contract or fraud.  Chances are the creditor will back off.
• Debtors commonly lose their houses when they intentionally undervalue their homes in bankruptcy schedules, resulting in trustee objections and, ultimately seizure and sale.
• Creditors can challenge the dischargeability of a debt.  This apparently happens frequently and in the case involving Mr. Dunn’s attorney son, the guarantor that was sued ended up moving to a country with a non-extradition treaty with the United States to escape the judgment.
• Bankruptcy filings trigger tax audits.
• Tax debt is especially tricky to discharge in a Chapter 7

Now, I do not know Mr. Dunn, and I am going to assume that he is a reasonable, intelligent and fair minded gentleman.  But his editorial completely misrepresents the nature of consumer bankruptcy cases and the fresh start that bankruptcy can and do offer the vast majority of people who file for bankruptcy relief.

In what alternate universe do creditors hesitate to sue debtors?  In Atlanta, where I practice bankruptcy law, creditor firms file suits by the hundreds and the notion that a creditor rights mill attorney would hold off on suing because of a “breach of contract” threat by a consumer (this assumes that a non-lawyer consumer knows about affirmative defenses in civil litigation) is patently absurd.

Are dischargeability challenges filed?  Of course, but extremely rarely – I have seen less than ten in 23 years of active practice.  Do debtors often lose their homes because of intentionally low property valuations?  Perhaps – but I have never seen such an instance.   Are the rules about tax dischargeability arcane and complex?  Yes, but debtors discharge tax liability all the time with no problems.

I suspect that any one of my colleagues here at the Bankruptcy Law Network could fashion a point by point refutation of Mr. Dunn’s editorial.  The problem, of course, is that none of us has access to the Forbes Magazine platform.   No doubt tens of thousands of affluent, influential and well-connected subscribers are reading Mr. Dunn’s editorial which may reinforce their previously held misconceptions about consumer bankruptcy.

Mr. Dunn paints a wholly inaccurate picture of the consumer bankruptcy world.   It is disingenuous at best to use the phrase “consumer bankruptcies” in the title of his article, while disclaiming chapter 13 cases are consumer cases.   When he does support his assertions with anecdotal evidence, his examples are the rare exceptions rather than the typical results.

Diligent and thoughtful consumer bankruptcy lawyers always discourage bankruptcy filings unless absolutely necessary.   And even Mr. Dunn begrudgingly admits that “I am not saying that bankruptcy never makes sense for a consumer.”  But the analysis presented here overlooks and downplays the necessary role that the consumer bankruptcy laws play in preserving hope for millions of hardworking but unfortunate (and, admittedly, sometimes careless) people who deserve better than the purgatory of unmanageable debt.

Okay, this is not about bankruptcy per se, but it’s about how hard life is (that is contributing to the massive increase in bankruptcy filings) and about what we might be able to do about it, individually and as a community. If you live in Albuquerque, New Mexico, consider attending a National Issues Forum (NIF) public forum on economic security that the University of New Mexico’s law school’s Institute of Public Law is conducting in conjunction with the Albuquerque Journal. It takes place March 23, 2011. The Forum will also be the topic of a Sunday morning 10:00 a.m. television interview with IPL Director Paul Biderman (on KOB TV‘s “Eye on New Mexico” program).

As the Forum’s brochure states:

As the nation slowly recovers from its worst recession in decades, it is a good time to ask how we can best take charge of the future so families can feel reasonably secure, parents can help their children prosper, and everyone can move toward a financially stable retirement.

Three options for gaining economic security will be discussed: (1) Act More Responsibly with Our Money; (2) Look Out for Each Other; and (3) Grow Our Way Out.

The NIF works on naming and framing local issues for public deliberation, funded in part by the Kettering Foundation of Dayton, OH, which is sponsoring a national project. From the NIF website, explaining what they do:

About National Issues Forums (NIF)

National Issues Forums (NIF) is a network of civic, educational, and other organizations, and individuals, whose common interest is to promote public deliberation in America. It has grown to include thousands of civic clubs, religious organizations, libraries, schools, and many other groups that meet to discuss critical public issues. Forum participants range from teenagers to retirees, prison inmates to community leaders, and literacy students to university students.

NIF does not advocate specific solutions or points of view but provides citizens the opportunity to consider a broad range of choices, weigh the pros and cons of those choices, and meet with each other in a public dialogue to identify the concerns they hold in common.

Although all forum activity is locally organized, moderated, and financed, the materials they use in common are produced by the Kettering Foundation of Dayton, Ohio, among others, and promoted by the National Issues Forums Institute. Among the publications developed each year are issue books used in the forums-clearly written nonpartisan booklets that describe the problem and present citizens with the advantages and costs of alternative policy choices. Regular, abridged, and Spanish editions of many of the issue books are available, as are videotapes and, in the case of the most recent books, DVDs. Abridged editions are designed for both adult and young new readers

Click here for a link for the brochure about and registration for the Albuquerque Economic Security Forum.

Gini Nelson is a Santa Fe, New Mexico bankruptcy lawyer who helps people file (or avoid) chapter 7 bankruptcy.

In earlier posts, two bankruptcies filed by debtors appearing in Bravo Television reality shows were discussed.   Terese Giudice who appears on Real Housewives of New Jersey and Sonja Morgan who appears on Real Housewives of New York City each filed banruptcy.   Ms. Giudice filed a chapter 7 bankruptcy (consumer bankruptcy); Ms. Morgan filed a Chapter 11 bankruptcy (for high income consumers or bigger businesses).   My opinion was that Ms. Morgan chose wisely and that perhaps Ms. Giudice had not.    The events since the filing demonstrate the importance of filing accurate and thoroughly complete schedules.

On  June 30, 2010, the Chapter 7 Trustee filed an adversary proceeding, objecting to the discharge of debts for the Giudices.  The Chapter 7 trustee alleges that assets were concealed or withheld by the debtors and that as a consequence, their debts should not be discharged.  On August 3, 2010, the Giudices answered the lawsuit, denying that they had concealed any property or withheld any information from the court.  On September 2, 2010,  the United States Trustee filed an adversary proceeding in the Guidici case in New Jersey.   That adversary proceeding, or lawsuit, objects to the discharge of the debts of the Giudices.   The United States Trustee functions as a prosecutorial arm of the federal bankruptcy system and is a division of the United States Department of Justice.    The lawsuit paperwork recounts the actions of the Giudices from the inital papers filed through September.    The United States Trustee alleges that there were numerous inaccuracies in the initial papers and then lists the amendments.    Mr. and Mrs. Giudice appeared at their 341 meeting with the trustee and acknowledged some of their property was not listed.    Amendments were filed after that meeting.   The Giudices then appeared at a 2004 examination (separately).   At that examination, the Giudices acknowledged that additional property was not listed.   Amendments were filed which listed more property.   The UST alleges that even after the amendments that the Giudices still failed to list even more property.   Through their attorney, on October 4, 2010, the Giudices filed an answer to the lawsuit, admitting that there were errors but denying intential omissions were made.    The Giudice answer alleges that a further amendment will be filed with the Court which will complete their bankruptcy filing.   

Complicating matters further are other adverary proceedings filed against the Giudices in their bankruptcy case.   One of those was filed by Joseph Mastropole, Mr. Giudice’s ex-business partner, who is objecting to any discharge as Mr. Mastropole alleges that Mr. Giudice is liable on a mortgage held by Mastropole and that a fraudulent document was recorded by Giudice releasing the Mastropole mortgage.     In that case, while on the stand, Mrs. Giudice testified that she did not sign the bankruptcy papers and was unaware of the bankruptcy until after it was filed.    Apparently, during a bankruptcy court hearing, Mr. Giudice admitted to the forgery of his wife’s name on the bankruptcy papers; that admission has now caused the Essex County, NJ prosecutor to become interested in filing forgery charges against Mr. Giudice.   In the Mastropole adversary proceeding, Mr. Mastropole alleges that the Giudices have a pattern of fraud and deceit (Mastropole had filed a state court case which was put on hold when the Giudices filed for bankruptcy protection).   The Mastropole case was combined with another adversary proceeding filed by John Testa as the two cases were based on the same or similar facts.

According to the United States Trustee website:

The Program was established by the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.) as a pilot effort encompassing 18 districts.  It was expanded to 21 Regions nationwide, covering all  federal judicial districts except Alabama and North Carolina (those two states have bankruptcy administrators, as explained by my colleague, Susanne Robicsek). … The Program is funded by the United States Trustee System Fund, which consists primarily of fees paid by parties and businesses invoking Federal bankruptcy protection.   The primary role of the U.S. Trustee Program is to serve as the “watchdog over the bankruptcy process.”  As stated in the USTP Mission Statement, the USTP Mission is to promote integrity and efficiency in the nation’s bankruptcy system by enforcing bankruptcy laws, providing oversight of private trustees, and maintaining operational excellence. …The Attorney General is charged with the appointment of United States Trustees and Assistant United States Trustees. The Executive Office for U.S. Trustees in Washington, D.C., provides general policy and legal guidance, oversees the Program’s substantive operations, and handles administrative functions.

The debtors are in a very bad position.  The local prosecutor is investigating criminal charges, the United States trustee is objecting to their discharge, and the Department of Justice is likely to become involved for federal criminal charges.  All of these agencies and the attorneys involved in the other two adversary proceedings are all paying attention to the answers given in any court proceeding.      Bankruptcy fraud is a serious matter, as explained by my colleague, Dana Wilkinson, even for small businessmen.  Back in 2006, the government announced “Operation Truth or Consequences“, a cooperative effort by many federal agencies to work together to fight bankruptcy fraud.

The lead article in the Economy section of the June 18, 2010 New York Times offers revealing insight into the practices of “debt settlement” companies.   Debt settlement companies position themselves as alternatives to bankruptcy, suggesting that they have insight into “secrets that the credit card companies don’t want you to know.”   In fact, the business models used by debt settlement vendors is fairly simple.   As the Times article explains:

In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.

The problem, however is this:

What they don’t tell their customers is when you stop sending the money, creditors get angry,” said Andrew G. Pizor, a staff lawyer at the National Consumer Law Center. “Collection agents call. Sometimes they sue. People think they’re settling their problems and getting some relief, and lo and behold they get slammed with a lawsuit.

Further, “the industry’s own figures show that clients typically fail to secure relief. In a survey of its members, the Association of Settlement Companies found that three years after enrolling, only 34 percent of customers had either completed programs or were still saving for settlements.  According to one debt settlement executive quoted by the Times, the entire industry is like a “Ponzi scheme.”

Congress and federal regulators are apparently getting the message from angry and disappointed consumers.   Currently, several  proposals are on the table that would ban upfront fees, cap total fees charged and require extensive disclosure about services to be performed.

My BLN colleagues have expressed their views about debt settlement vendors here and here.

So what should a consumer do about unmanageable debt?  In my opinion, the starting point should be a consultation with a bankruptcy lawyer.  This does not mean that you should file bankruptcy – it means that you should spend an hour with an attorney to educate yourself about what to expect over the next few months, about mistakes to avoid if bankruptcy is an option and to gain perspective about the depth of your problem.

In my Atlanta area bankruptcy practice, I regularly meet with men and women for a small fee to discuss debt issues, with bankruptcy comprising only a small part of the conversation.   It is not uncommon for me to meet with a prospective client three our four times over the course of a year or longer.

In my opinion debt settlement companies are filling a market niche of consumers who want a quick and simple solution to a complicated problem.   There is no “one size fits all” solution, for example, to $85,000 of credit card debt if your household income is $50,000 annually, and all of your options are likely to involve pain and sacrifice.   You have to be an active and educated participant in identifying and evaluating all of your options.

If you don’t know who Harvard Law School Professor Elizabeth Warren is, you should. She’s a plain-speaking champion of the American consumer and a noted authority on bankruptcy law.

Jon Stewart recently hosted her as a guest on “The Daily Show.”  In addition to being funny, this interview is highly informative. Once you know something about the history of financial regulation, you understand why we are, as one commentator said, the “United States of Amnesia.” We have a financial crisis, impose regulation so we won’t have it again, forget about the financial crisis, deregulate, and have another crisis.  I hope you enjoy the video clip.  To watch it, just click on “Elizabeth Warren.”  And after you watch it, if you have the urge to kiss Professor Warren, well, get in line.

Russell A. DeMott is a Charleston Bankruptcy Lawyer who helps people file Chapter 7 and Chapter 13 bankruptcy.

Kids don’t have credit, do they? �Studies have shown that 32% of high school seniors use a credit card and 3 out of 5 college freshmen max out their credit cards within the first year. �College students receive an average of 8 credit cards offers within their first week of school. �Universities lose more student to financial distress than academic failure. �The Credit Cardholder’s Bill of Rights recently passed by Congress will limit the availability of credit card companies to market to kids. �That law becomes effective in February 2010.

The CARE Program has produced a half-hour video to educate students about he dangers of credit cards. �That video can be watched online. �CARE is�a free financial literacy program that puts experienced �bankruptcy professionals in the classroom to teach the importance of financial education to students. �The film covers the basics of credit and debt, budgeting and savings. �While aimed at students, the production can provide benefit to adults as well.

Gotcha Capitalism: How Hidden Fees Rip You Off Every Day and What You Can Do About It (way to go with the pithy title) came to my attention recently, and strikes me as a good investment for consumers.� If you eliminate $15 in fees the book will pay for itself, and you might even find it at the local library.� Written by Bob Sullivan, who is the face behind MSNBC’s Red Tape Chronicles, the book makes a compelling case that all of us, no matter how vigilant, are paying the sneaky fees and charges that banks, insurance companies, and cell phone carriers (to mention but a few) hide in the fine print.� We’re talking real money here, and that’s before he ever gets to the fees and charges that, over time, seriously reduce retirement savings and pensions.

None of us like to be cheated, and this book will certainly better prepare consumers to identify and combat the kind of sneaky fees Sullivan identifies.� I have a warning, however.� Once you read this book you may never be able to blithely sign a service contract, insurance binder, promissory note or credit card application without reading the fine print.� You might want to pick up a pair of those $6 reading glasses at Walmart next time you’re there, too.

Texas Attorney General, Greg Abbott, charged JK Harris & Company, LLC, its owners and two related firms (JKH Financial Recovery Systems LLC and Professional Fee Financing Associates)� today with “materially misrepresenting their ability to help Texans resolve their unpaid tax obligations.”� The state enforcement action alleges JK Harris failed to provide promised services, misrepresented its employees’ profession skills and expertise, overstated its ability to reduce debts that customers owe to the Internal Revenue Service, and accepted large, prepaid fees from customers whose tax liabilities the firms knew – or should have known – they could not reduce.

Attorney General Abbott said “the defendants are charged with unlawfully misrepresenting – and overstating- their ability to reduce unpaid debts that taxpayers owe to the IRS.� Mr. Abbott went on to say “{s}truggling Texans who paid large, upfront fees were told that their unpaid taxes could be resolved for pennies on the dollar.� Today’s enforcement action seeks restitution for the defendants’ Texas customers and a court order enjoining the defendants’ unlawful conduct.”

Texas is seeking an injunction, penalties, fees and restitution for the Texas based JK Harris customers.

The defendants’ advertising and marketing materials claimed that JK Harris could settle customers’ unpaid tax obligations for pennies on the dollar.� JK Harris typically charged $2,000 to $5,000 – paid in advance – for its tax resolution services, which largely relied upon the IRS’ Offer-in-Compromise (OIC) program.� According to court documents, the defendants charged customers without actually reviewing individual tax files to see whether individual taxpayers were eligible for relief through the OIC program – which is limited to very specific situations.� Texas’ investigation revealed that few of JK Harris’ customers qualified for OIC relief.� Further, JK Harris and the other defendants often failed to file their customers’ OIC application forms and frequently took no steps to reduce customers’ tax debts.� When customers realized that JK Harris had taken little or no action and demanded refunds of the fees they had paid, the defendants often failed to return the customers’ money.

Court documents also allege the defendants mislead customers about JK Harris’ regional employees’ qualifications.� While the defendants’ advertisements claimed that former IRS agents, Certified Public Accountants, lawyers, and other professionals were “available to meet with consumers in 325 locations in 43 states,” Texas investigators discovered that JK Harris regional offices were staffed by sales personnel who are not trained tax experts.� Thus, resulting in Texas customers being misled.

Texans who believe they have been harmed by a tax-assistance firm’s unlawful conduct or wish to file a complaint may contact the Texas OAG at 800-252-8011 or online at www.texasattorneygeneral.gov.

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