In the bankruptcy practice where I work, I increasingly see clients caught in financial binds caused by usurious home loans.  Oregon has an explicit exception to the Usury statutes limiting interest and fees charged on loans set forth in ORS 84.024 (4).  On the other hand, there are many state and federal statutes including RESPA and HOEPA which have provisions either restricting loan terms or requiring lenders to be explicit when disclosing the costs of a loan. When examining loan documents I sometimes find clear violations of existing laws, but far more often what surfaces is a contract which is legal, but unconscionable.

Usury, once associated with organized crime, has become institutionalized in credit-card lending, subprime home loans, and, increasingly, private student loans.  Home loans and easy credit have driven the economy for the last decade, generating obscene profits for banks and lending institutions.  Congress, meanwhile, adopted a laissez-faire attitude.  If it wasn’t obviously broken, no-one wanted to expend effort to fix it.

The general lack of Federal oversight in the mortgage industry and the ease with which lenders could circumvent the Truth in Lending Act were clearly imprudent, as they allowed unscrupulous mortgage brokers and lending institutions to defraud both homeowners and investors in ways which reverberate throughout the entire American economy. But were any of the actions of either Congress or the loan industry immoral, and if so, against whose standards are they to be judged?

Any moral code which condemns as a sin something which has proven to be disastrous in purely practical terms (as the explosion in subprime mortgages clearly has) is worth revisiting. Examining several historical sources on the subject of usury revealed some useful distinctions between moral and immoral money lending. Under usurious practices considered to be un-Christian, Medieval and early Modern Roman Catholicism included:

• Charging fees for the use of money above and beyond what could be justified by the labor expended in making the loan, risks to the lender, and losses incurred because the lender did not have the use of the money.
• Using a borrower’s distress to force him to enter into an unequal bargain in favor of the lender.
• Creating a loan whose repayment terms cannot be met.
• Making necessities of life, such as shelter, surety for a loan.
• Substituting loans for charity.
• Using indebtedness as a means of coercing others into acting against their own best interests.

The actions of subprime lenders in originating loans pretty clearly violate the first four points.  Government policies that used the availability of subprime loans to low-income borrowers as a substitute for direct housing subsidies could be viewed as an abrogation of charity. The encouragement of private usury, in this instance, has become a matter of public policy.  Usury cloaks itself in a mantle of social egalitarianism in order to propagate and amplify social inequality.

The last point, coercion, figures prominently in refinancing agreements, often entered into because the homeowner has other unmanageable debts and is subject to abusive collection practices. It is virtually never in a homeowner’s best interests to obligate home equity to pay off unsecured debt, even in those rare cases where the terms of the home equity loan contain no hidden pitfalls or excessive finance charges.

The Bible and the Koran both condemn usury.  A cursory survey of historical writings reveals unequivocal condemnations by St. Gregory of Nyssa (379 AD), St. Thomas Aquinas (13th century), Martin Luther (16th century)  and Pope Benedict XIV (Vix Pervenit, 1745), among others. Have things changed so much in the world, that all of their arguments, derived from many different principles and sources, are null and void?  Not if you look at results.

Bankruptcy in many ways is a Christian concept.  American bankruptcy laws have Biblical roots.  The seven-year waiting period between personal bankruptcies that was the law until 2005, for example, is based upon Deuteronomy 15:1-2

At the end of every seven-year period you shall have a relaxation of debts, which shall be observed as follows. Every creditor shall relax his claim on what he has loaned his neighbor; he must not press his neighbor, his kinsman, because a relaxation in honor of the LORD has been proclaimed“

and Leviticus 25, which describes the regulations both for a seventh year Sabbath and a fiftieth year of jubilee.

Apologists for the finance industry posing as Christians cite Psalm 37:21: The wicked borrow and do not repay, but the righteous give generously,” and claim Christians are obliged to keep payback promises even when life throws a curve ball, according to an article in Christian Science Monitor, Monday July 3, 2007.  This is a classic example of taking a single passage out of context and twisting it in a way diametrically opposed to the message of the Gospels.

The passage in Deuteronomy is a commandment to cease efforts to collect payments on the principal amount of a debt, rather than an injunction to forgive the entire amount of the debt. Debt collection is equated with other commercial activities tending to accumulate wealth, such as harvesting crops for sale rather than personal consumption.  The Sabbath, whether weekly or every seven years, provides a respite for the debtor and the laborer whose surplus goes to enrich others. The sabbatical provisions of Deuteronomy are more analogous to automatic stay provisions of bankruptcy than to discharge.

When coupled with the very numerous prohibitions against lending money or goods at interest in Deuteronomy, Leviticus, and elsewhere in the Old Testament, and the absolute discharge provisions of the fiftieth year jubilee, the passage certainly provides scriptural support for current personal bankruptcy laws.

Lending money or goods at interest, especially to the poor in one’s own community, garners some of the Hebrew prophets’ most scathing condemnations, for example Ezekiel 18:13 - “Hath given forth upon usury, and hath taken increase: shall he then live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him.”  There is little doubt that these passages, when written, referred to all interest and not just to interest above some arbitrary threshold of reasonableness. 

From a biblical perspective, the bankrupt who seeks discharge of debts consisting predominantly of accumulated interest and fees is only seeking relief from the predatory actions of a lender who sinned and is profiting from it.  The debtor who entered into such a loan arrangement in good faith should not feel that his inability to meet the letter of an abusive contract violates his duty as a Christian.

Psalm 37:1 is almost the only passage in the entire Hebrew Scriptures explicitly condemning non repayment of debts. It refers to deliberate attempts to defraud creditors, not to debt incurred with the honest intention of repaying it, and even then, the disapproval is mild compared to that heaped on lenders and their usurious practices elsewhere.

In contrast, Mathew 18:21-35, an explicit teaching of Jesus Christ, likens God to a king who forgives his servant the enormous sum of ten thousand talents, and subsequently has that servant jailed when he attempts to exact a much smaller debt from an underling. The parable concludes Then his lord summoned him and said to him, ‘You wicked servant! I forgave you all that debt because you besought me; and should not you have had mercy on your fellow servant, as I had mercy on you?’ And in anger his lord delivered him to the jailers, till he should pay all his debt. So also my heavenly Father will do to every one of you, if you do not forgive your brother from your heart.”

The corporations responsible for abusive lending practices willingly allow so-called Christian pundits to preach to their flocks a message of unending obligation and religiously-mandated self-sacrifice to atone for the sin of borrowing unwisely.  They are not, to my knowledge, correspondingly willingly to personally shoulder the burden of their improvident lending, but rather take refuge under our far more generous corporate bankruptcy laws. Apparently these hypocrites think Ps 37:1 overrides Mathew 18:25.  If they’re wrong, the Gospel suggests that they’re in for an unpleasant surprise, either in this life or the next.

When is a free credit report not free?  A credit report is not really free, or at least you could easily be charged for it, if you use one of the commercially advertised websites.  The television commercial advertising this service is really a for profit venture trying to sell you a service for a fee.  You must first give them your credit card information (if you have an active credit card) and to avoid a charge you must cancel the service within a specified amount of time.

To paraphrase my friend Jay Fleischman who writes in the New York Consumer Litigation Center Blog.  The three primary national consumer credit reporting companies are required by a federal law, the Fair Credit Reporting Act (FCRA), to provide you with a free copy of your credit report, at least once every 12 months if you ask for it.

All you need to do to order your free annual credit report is go to www.annualcreditreport.com, or call 1-877-322-8228 , or fill out an Annual Credit Report Request Form and mail it to the official address: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

This report is really free.  It is not an independant commercial venture, only the legal response by the consumer reporting bureaus to the mandated consumer service.

As explained in a recent article arguing in favor of a federal exemption for the Earned Income Credit, the federal credit, created by 26 U.S.C. §32 (1994), is a refundable tax credit provided for low income workers who have dependent children and who maintain a household. A low income taxpayer can get the credit, in the form of a check or automatic deposit into a bank account, even if the amount of the refund is larger than the amount of tax paid that year.

In Oregon we have an exemption specifically protecting the Earned Income Credit and keeping it entirely exempt from exectution by a debt collector with a judgment.  This exemption also applies to the trustee in a bankruptcy case.  It is found in ORS 18.345(n) and has no limit on the dollar amount of the credit that is protected.

With regard to the Earned Income Credit, Oregon is far more progressive than many other states.  The homestead exemption in Oregon is modest, although recently increased from $25,000 for an individual to $30,600, it is still not sufficient to protect even a small condominium unless it is heavily encumbered.  However, the need to protect the federal benefit that helps low income working people make ends meet was clear for the Oregon legislature.  State Senator Vicki Walker’s job as a bankruptcy court reporter may have played a part in getting this legislative safety net put in place.

You can visit my Oregon Exemptions website page for a detailed list of statutory exemptions in Oregon.

I have an airline sponsored credit card I use to buy things.  Why not?  I earn airline miles and I don’t buy anything more than I would have with cash, debit card or check.  I pay the balance in full on the credit card each month and never pay any interest.

However, not everyone is as careful in the way they use credit cards as I am.  After nearly 30 years as a bankruptcy lawyer, I have a healthy respect for credit and use it carefully.  This wasn’t always the case.  Back in my student days, when money was tight, I would occasionally use my credit card less carefully and without paying attention to the cost of the credit.  I know that I bought things I would have passed up if I didn’t have easy access to credit.  Many of those “impulse purchases” would have been avoided if I had been required to wait until I could pay cash for the goods I bought.

Now the credit card companies are getting into the student loan business.  A recent online advertisement offered airline miles for student loans with this announcement:

“Earn 1 Mileage Plus mile for every $1 borrowed with a new Chase Private Student Loan. A Chase Private Student Loan can help pay for education-related expenses not covered by federal loans or other aid. Act now and earn 1,000 additional miles.” 

The ad included a toll free number and airline website location for more details.

Because I do not promote the lender, I have left out the details of this offer.  You can certainly find it if you go to the bank website.  But I do not recommend it.  There is very little, if any, government regulation of these private student loans.  In fact, the private loans are subject to all of the bad things about student loans in general and have none of the benefits of government sponsored loans.

First and foremost, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 changed the law and expanded the rule against discharge of student loans in bankruptcy cases.  Now, all student loans, not just government sponsored student loans are left out of a bankruptcy discharge except in the most extreme of circumstances.  To see how extreme this can be, look at my recent article on the bankruptcy law network.

Bankruptcy allows change of loan terms for loans on many types of real estate.  The reason this power is given to the bankruptcy courts, is that a bank or other lender would only recover the value of the property if it went into foreclosure.  By changing the loan terms to give the lender the same amount of money it would get if it foreclosed, the borrower would get to keep using the property without any loss to the lender.  The technical term for this process is called, believe it or not, “cramdown”.

Congress allows cramdown of the loan balance to the property value in three types of bankruptcy cases.  A cramdown can be ordered in cases under chapters 11, 12 and 13.  However, with the exception of a family farm in chapter 12, the bankruptcy laws will not allow a cramdown when the real estate is the debtor’s home.  This means that a homeowner is not allowed to use this valuable tool to save their home from foreclosure.

Congress is now considering new laws to help homeowners save their homes by changing the loan terms.  In a recent web article, bankruptcy lawyer Brett Weiss discusses recent comments by the founder of a notorious sub-prime default loan servicer, Larry Litton.  Clearly, some lenders do not like this proposed change to the bankruptcy law.

There is no doubt that the change would help homeowners keep their homes when they are short of money and they face foreclosure.  I, for one, believe the change would benefit everyone.  The lenders only want their money and not the house.  When home prices are falling, a foreclosure can cost them even more.

Not only does foreclosure of homes cost the homeowner and the lender, it can drive prices down for entire communities.  The recent news is full of articles about neighborhoods were every other house is offered for sale by a bank or loan company.  This is because the banks, like you and me, can only get their money out of a house by selling it.  They have foreclosed so many houses that the banks are now in competition with each other, trying to sell them.  With so many houses on the market, the price is going down even more.

Houses without homeowners in them are subject to vandalism, illegal occupancy by criminals for various purposes, and can decline in value quickly.  With a mortgage market in termoil, and home loans in short supply, this is not in the best interest of anyone involved in the process.

Are Oregon highway use taxes dischargeable in bankruptcy?  Yes, if certain conditions are met, a debtor in bankruptcy can discharge taxes incurred in Oregon for use of the highways.  Claims for state and federal highway use taxes levied against truckers based on the weights of vehicles turn up frequently in Oregon bankruptcy cases.  The state is aggressive in enforcing the tax required by ORS Chapter 825.

I recently had a new client bring in collection notices for nearly $250,000 in tax assessed by the Oregon Department of Transportation as the result of a an audit of the company books.  The client had failed to properly respond to the audit notices and to pursue all of his administrative remedies.  He later spent over $25,000 in attorney fees to no avail when he tried to get a new hearing.  It is unable to continue operating trucks and has had to close his business.

I was unable to fully answer his questions and did a little research on the discharge issue.  It seems that the Oregon bankruptcy court has determined the highway use tax to be in the nature of an excise tax.  See my article on this subject posted at Bankruptcy Law Network.

Because the tax is considered and excise tax it can be discharged in a bankruptcy proceeding if it meets certain requirements.  The returns must have been filed, there can have been no fraud, it must be at least three years after the returns were supposed to have been filed.  If the returns are filed late, it also must be two years after the returns were actually filed.