Response to New London Day Bankruptcy Article

Posted by David Falvey on Saturday, January 23rd, 2010 - 2,338 views

This is my letter in response to an article in The Day ‘Personal bankruptcies easing after dramatic increase in ’09’ by Lee Howard.

Hi Lee Howard:

I read your article regarding bankruptcy statistics. I respectfully disagree with the interpretation of the bankruptcy statistics presented.

Let me first cite a little piece of bankruptcy history as my first observation. In Oklahoma at one time the oil industry prices so fell that Oklahoma no one could pay on their mortgages. And consequently, there were no foreclosures and no Chapter 13’s! Why? The banks stop foreclosing on properties because no one could pay on their mortgage and no one could buy a home. The defaults were massive.

And if the bank foreclosed on all its portfolio which it had the legal right to foreclose, then the bank became a proud property owner and proud property owners pay property taxes, and insurance on their homes and have to have the homes inspected. So all that the foreclosure accomplished was to turn a non-performing loan into a monthly expense because again, no one was buying real estate. So here’s a scenario where there are no Chapter 13’s and based on the line of reasoning in your article, the fewer the Chapter 13s, the better the economy.

Second, New London County has the lowest number of Chapter 13 filings in the State of Connecticut. In 2008, there were an average of 140 Chapter 13 petitions filed monthly. In 2009, there was an average of 70 Chapter 13 petitions per month filed for the State of Connecticut. New London County had the lowest number of Chapter 13s and I don’t know the number but it can be obtained. You could call the Office of the Chapter 13 Trustee, Molly Whiton, at 1-860-278-9410 and she could tell you how many Chapter 13s were filed in New London County for 2009 and 2008.

People can’t afford to save their homes by using a Chapter 13. They are simply walking away from the homes and using Chapter 7. Their homes are ‘submarines’ , they are completely submerged. Now President Obama had as a center piece of his ‘change you can believe in’ (I voted for Obama) legislation that the bankruptcy judge could adjust the terms or interest rates on mortgages.

This actually can be done in a Chapter 12 but Chapter 12 is limited to farmers and fisherman. This legislation passed the house and was defeated in the Senate by 10 Democrats- 5 Southern Democrats and 5 Democrats from the West. Obama sat-out this vote and didn’t do anything to fight for it. But then if we remember that one of Obama’s major contributors was Goldman Sachs and the Secretary of Treasury, Timothy Geithner, hired Marc

Paterson as his major aide and Marc Paterson was the chief lobbyist for Goldman Sachs and Goldman Sachs while selling mortgages was invested for over 1 trillion dollars in derivatives that the mortgages they were selling their clients would fail. And Goldman Sachs has had a spectacular year and there is ample money to pay all of the billion dollar bonuses to their employees.

Paterson was hired before the Senate voted on the key center piece legislation which would have allowed bankruptcy judges to modify mortgages. So Chapter 13s are definitely down not only in New London County but for the State of Connecticut. People are simply not trying to save their homes. They either don’t have enough income to save their home or their home is financially not worth trying to save and that’s why short-sales are ‘booming’ .

Saying all of the above, I really did enjoy the clarity of your writing and it forced me to think. Now that’s my spin on the statistics and I don’t know who said that there are ‘Lies, Damnable lies and then there are statistics!’

Have a good weekend,
Dave Falvey