I needed a vacation, badly. ?After a? long year launching Money Health Central, practicing bankruptcy law through the Great Recession, and teaching new bankruptcy lawyers at Bankruptcy Mastery, I was drained. ?Three weeks away sounded like Nirvana.

I had three weeks in which I didn’t have to post a thing to the three or four sites I write for; ?three weeks without a phone number. ?Three weeks to turn my focus elsewhere.

Trouble was. I bought local newspapers as we visited England and Scotland.? Consumer money issues were everywhere.

Not even the euro crisis and looming Greek ?default could push stories about individual money matters off the radar. What was in the newspaper ended up in my head.

The problems for the middle class seem to mirror those in the States, embellished in the UK with significant rises in prices for everything, especially energy.

Here’s a roundup of ?money matters from three weeks abroad.

• The cost of university is rising so fast that British students are rushing to take exams to allow them into American universities which are cheaper than in the UK.
• Increasing numbers of graduates have student loan debt and no job.
• Payday lending is thriving, while a few Members of Parliament campaign against legal loan sharking.
• Banks have been exposed added unwanted credit insurance to loans and made to establish a fund to make customers whole.
• Over and over again stories of miserable customer service provided by banks are reported.
• Card issuers cut available credit by 95% for someone who paid off the balance each month.
• Debt settlement schemes thrive there too.

Sounds just like the things I fret about professionally here in California.? It’s eery how similar the world is these days.

Image courtesy of Benson Kua.

In the past year, I’ve seen half a dozen folks whose small business isn’t really making it, and in better times, I would have urged them to acknowledge that and move on.? But in our present economy, what is there to move on to?

Over at Money Health Central, my buds and I have been writing about self employment:

• choosing the form of the business
• do’s and don’ts for the self employed
• planning for self employment taxes
• staying out of? tax troubles
• filling all the roster positions as an entrepreneur

But we haven’t cracked the problem of self employment as a last resort.

The handwriting on the wall suggests that the economy of the future will involve more freelancers, project based employment, and multiple career changes.? Networking will be essential to find work and budgeting essential to carry us between jobs.? We can teach those skills to the young;? it’s a lot harder to change the mind set and skill set of the middle aged.

I’ve gotten good at talking people into surrendering the overly expensive, underwater house. I’m clueless about how to help the involuntarily self employed.

It was more obvious before BAPCPA: we calculated the debtor’s projected income and living expenses, and all of what was on the bottom line was paid into the plan. Now, we use Congress’ objective? measure of what it should cost to live, and pay 100% of the arbitrary formula? into the plan. There is no provision in the Chapter 13 means test for savings other than long term retirement savings.

I’m not knocking saving for retirement. In fact, as debtors counsel, my most oft-repeated reason for reluctant clients to take the plunge and file bankruptcy is to provide for retirement. Discover, I tell them, does not have to retire, and you do. What have you saved for that day?

But every household needs some savings for today, for tomorrow, and next month.

The Supreme Court’s Ransom decision reinforces the sense that saving is not a financial virtue. A debtor with a paid for car is not reminded that the old car will need to be replaced, and saving toward that inevitability is a good thing. Rather, the car is paid for and we’ll indulge in the idea that the car will last another 5 years and devote that cash flow to creditors. We have effectively mandated that, instead of putting a serious down payment on the next car, our client will again finance the next purchase at whatever interest rate is available to the newly discharged. The cycle of borrowing is perpetuated.

Debtors are required to take a class in personal financial management to get their discharge. Those classes surely do not promote consuming 100% of one’s income. Short term saving is needed to provide for the unexpected and the infrequent. Otherwise, you continue to live on the financial brink

It is ironic, but true, that a Chapter 7 debtor can begin reforming the way she handles money almost immediately after filing bankruptcy. A Chapter 13 debtor lives for 3 to 5 years with a budget that makes no provision for an emergency fund.

I would like to think that Chapter 13 is rehabilitative, that it uses the duration of the plan to build new and better habits of money management. That isn’t what’s happening. As it is, the system’s distaste for savings while debts are unpaid perpetuates budgeting to spend every single dollar the debtor handles.

The language of our confirmation order provides that the debtor’s post petition income is submitted to the supervision and control of the Chapter 13 trustee. What kind of financial professional is the Chapter 13 trustee if that supervision and control doesn’t encourage some level of savings?

Or is the financial management class just window dressing whose lessons don’t really apply until the creditors have gotten their pound of flesh?

This article was originally written for the Variety of Views feature at ConsiderChapter 13.org.? Unfortunately, there, it was? behind a pay wall.

Image courtesy of kenteegardin

I’ve adapted.? Chapter 13 became more like the alternative dumping ground if the means test closed off Chapter 7.? Often, the differing allowable deductions on B-22C meant the debtor foreclosed from 7 made minimal payments in 13.

But what galls me these days is the impact of the 9th Circuit BAP decisions of Smith and Martinez which disallow deductions for debt contractually due in the upcoming 60 months on liens to be stripped in the Chapter 13 and for property to be surrendered.? The result is that Chapter 7 becomes more attractive because there, the prevailing case law hews close to the statutory language that allows means test deduction for debts due over the life of a Chapter 13 plan.? What a blow to the sponsors of BAPCPA who were intent on forcing more debtors into Chapter 13 repayment plans.? (This has to be the only time I’ve mourned the thwarting of the intentions of the? BAPCPA proponents.? Remember the line from the Grinch Who Stole Christmas that the Grinch’s heart was just so many sizes too small?)

Very soon after BAPCPA was effective, I argued the Pak case to the BAP concerning whether the statutory look back period in B-22 was conclusive when the debtor’s future income was not only different but larger.? I argued that the law was to be applied the way it was written:? that Congress, in its infinite wisdom (and I tried not to giggle) thought it could write a formula to find the “can pay” debtors and that it intended to cut off judicial discretion to assess the allowance of expenses or the income to be available to fund the plan.? I lost and came away after oral argument with the sense that the judges on the panel wanted the old days back, when their judgment and good sense were the last word.? That was a perfectly fine world, but not the world after enactment of BAPCPA.? (Kagenveama from the 9th Circuit some months later vindicated the argument I made unsuccessfully to the BAP.)

With Smith and Martinez, I again sense that the BAP is chafing at the idiocy found in? BAPCPA. ? I chafe too, but I don’t want to see a legal atmosphere where the words of the statute can be ignored if the judges see a way to “get” a debtor or to return to a world where their judgment is valued.? I treasure predictability, and if? BAPCPA gets applied as written(mean though it is), then I’ll figure out how to get my clients the best deal available under the law.? If however we have courts finding interpretations that carry them back to preBAPCPA days, then I feel like the Light Brigade: ” canon to the right of them, canon to the left of them…”? hoping I can ride boldly and well,? into the mouth of hell,…

In the mean time, I’m filing more Chapter 7′s.

Lawyers and judges struggling with applying the statutes amended by BAPCPA find the sloppy draftsmanship of this law painful to encounter. So much of what has been added isn’t compatible with the balance of the code and applying the words as written in one place produces either idiocy or the opposite effect somewhere else in the Code. My favorite judicial comment was by Judge Markell who analogized it to the White Queen who reported she was required to believe six impossible things before breakfast.

I have not yet seen a client who could not get relief in bankruptcy by reason of the changes to the Code. I have been surprised at how seldom the IRS collection standards used in the means test result in trouble for clients. Unfortunately, all of the additional steps in the bankruptcy process have required a substantial increase in the cost of a bankruptcy case. Further, about many of the issues raised by the new amendments, there are no clear answers about how these provisions will be applied in the real world.

Prepetition credit counseling has proven to be a farce. No one who has made the long postponed visit to a bankruptcy lawyer can manage his way out of a financial pit. The counseling requirement has just raised the cost and the number of ways a debtor without a lawyer can screw up.

I have greater hopes for the financial management class required to get out of bankruptcy. Most all of my clients have absorbed some self taught lessons about money; they are usually ripe for an attempt to learn to manage better. Of course, there is a limit in this economy to what good management can do for a family: you can hardly “learn” to avoid illness, unemployment or divorce. These are the three factors that account for more than 90% of bankruptcy filings.

BAPCPA was intended to reduce the number of folks filing bankruptcy. The initial numbers show that filings are down. There is no evidence that is because all the alleged “abusers” aren’t seeking bankruptcy relief. It is because, in part, an enormous pool of people considering bankruptcy last fall, took the plunge before October 05 to beat the harsh changes in the law. Many of those who didn’t file in 05 mistakenly believe that bankruptcy is no longer an option. This misconception is being fed by bill collectors who are telling debtors that “you can’t file bankruptcy on credit card bills”, or medical debt or whatever it is that they are collecting.

The financial precariousness of the American middle class has not been remedied by closing the door to the bankruptcy court. I hope this dawns on our political leaders.

Cathy Moran