Milwaukee, Wisconsin Bankruptcy Blog

If you live in Wisconsin and are considering enlisting the services of a bankruptcy petition preparer to help with your bankruptcy petition, you might want to think again. Due to the poor quality of their work and shady business practices, bankruptcy judges are cracking down on bankruptcy preparation services.

Bankruptcy petition preparers are services where a non-lawyer assists bankruptcy filers, for a fee, with putting together the necessary paperwork. Unlike attorneys and other legal professionals, state law does not require training or set minimum standards for petition preparers. These services often target low-income consumers through flyers and advertisements, promising that they can stop wage garnishment, foreclosure and calls from debt collectors.

Even though the Great Recession officially ended in 2009, it's abundantly clear that millions of Americans are still hurting. Indeed, new data shows that the rate of late mortgage payments increased last quarter for the first time since the end of 2009.

Between June and September 2011, 5.88 percent of American homeowners were more than 60 days late with two or more mortgage payments. The increase means a growing number of Americans are headed toward home foreclosure, sparking fears that the economy may be headed toward a double-dip recession.

The economy continues to sag under the weight of the continuing real estate crises. Too many borrowers remain underwater on their mortgage loans. Those borrowers are trapped, unable to refinance, obtain a mortgage modification or sell their homes.

Working solutions have been few. The Home Affordable Modification Program (HAMP) program, touted as providing help to borrowers in trouble, has helped close to a million homeowners in the last two years, but CBS news reports that less than 100,000 of those helped were underwater mortgages.

In other words, those most in need of help were not receiving any from HAMP.

Twenty percent of all borrowers are currently underwater, according to CoreLogic, a data vendor. They report that number equals almost $750 billion in negative equity in the housing market.

Recent data released by CredAbility, a nonprofit credit counseling agency that serves consumers throughout the United States, shows that an increasing number of Americans are filing for bankruptcy due to overwhelming medical debt.

Approximately 20 percent of people seeking financial counseling in advance of a bankruptcy filing now list medical debt as the primary cause of their financial troubles. This is up from a rate of about 13 percent over the last two years. The data is a good barometer of overall bankruptcy filings, since anyone considering bankruptcy is required to undergo credit counseling before filing.

Michelle Jones, senior vice president of credit counseling for CredAbility, suggests that people tend to get into trouble with medical debt because they feel bad about not paying doctors who have seen them through difficult times. Instead, consumers who can't afford medical care will often pay their bills with a credit card. Although this may solve the short-term problem, the payments can quickly spiral out of control. This is especially true for consumers whose poor credit history causes them to have to pay very high interest rates.

Data on foreclosure rates across the nation show that Wisconsin experienced a significant increase in foreclosure activity in July 2011. With a 43.3 percent increase in the number of foreclosure filings from the previous month, Wisconsin's experience contrasted with the declining numbers of foreclosure proceedings nationwide.

According to the U.S. Foreclosure Market Report published by RealtyTrac, a marketer of foreclosed properties, 4,534 Wisconsin properties received foreclosure filings in July, which is an average of one in every 571 housing units in the state. These numbers put Wisconsin tenth for the highest foreclosure rate in the U.S.

Many Americans look to their 401ks as a way to stem the tide of short-term financial issues. According to research by the Employee Benefit Research Institute, nearly 20 percent of eligible participants choose this option, mainly to avoid foreclosure of their home or repossession of vehicles. They borrow against their nest-egg believing that as their fortunes improve, they will not only repay their loan with interest, they will also solidify their retirement options.

Unfortunately, this is commonly not the case. More often than not, employees become trapped in a vicious cycle of needing money to pay other short-term loans and stop contributing to their retirement plans. Also, they forego potential investment opportunities from the money missing from the account. Further, they may also be laid off from their job, thus requiring the 401k loan due and payable, depending on the plan.

Ultimately, employees unwittingly spend away their savings only to find themselves in bankruptcy with nothing to show for their years of hard work.

Many former students experiencing financial difficulties must choose between paying for basic living expenses (such as food and rent) and their student loans. They commonly defer their payments to avoid default, but this does not prevent interest from accruing on the loan and increasing the overall balance. As such, the eventual payments become too much to handle, and they consider bankruptcy. Unfortunately, the bankruptcy code offers little relief because student loans fall under the status of non-dischargeable debt, which cannot be cancelled through bankruptcy absent a showing of "undue hardship." This is especially the case with private student loans.

Essentially, debtors seeking bankruptcy relief must satisfy each prong of the Brunner test (named after Brunner v. New York State Higher Education Services Corp.) They must show that they cannot maintain a minimum standard of living while paying their student loans, that their poor financial situation is likely to continue, and that they have made good faith efforts to repay their loans.

This is a very difficult legal standard to satisfy, so many unemployed Americans saddled with massive student loans do not escape from the penalties and interest that have accrued.

The U.S. Bankruptcy Court for the Eastern District of Wisconsin employed a Mortgage Modification Mediation Program (MMMP) in Wisconsin this spring. Chapter 13 debtors are able to take part in the mediation program and participation is voluntary. The goal of the program is to help debtors who are beginning the bankruptcy process obtain a timely mortgage modification and keep their homes.

Although the participation in MMMP is voluntary, certain criteria must be met in order to be eligible for the program. Namely, an individual must be a Chapter 13 debtor and unable to afford the mortgage payments on his or her primary residence. The debtor must also have a regular income and have a mortgage balance of less than $729,750.