Bankruptcy Help on the Way for Student Loan Borrowers

At long last, it appears that Congress is looking to help the millions of people saddled with student loan debt that they have no hope of ever totally repaying.   That help is coming through the bankruptcy laws being changed to make it possible to discharge (wipe out) those loans through bankruptcy proceedings.

Student loan debt has been a tremendous problem nationwide.  It is estimated that as many as forty-four million Americans owe more than $1.5 trillion in outstanding student loans.  That makes student loan debt second only to credit card debt as the highest category of debts owed by Americans.  The sponsor of the proposed legislation, Sen. Dick Durbin, hopes that it can be an escape clause for student loan borrowers who, he says, carry their student loan debts to their graves. [Read more…]

What Is The Importance Of My Credit Rating?

Calculator and graphing paperYou are surely aware that the three major credit reporting agencies (CRAs), also known as the credit bureaus, have a lot of power over whether you can get financing for vehicles, homes, and other credit transactions.  But you may not know how the CRAs get the information for your credit report, or what your credit score really means.  Since consumer credit history, scores, and reports are extremely important in your life, you need to make sure that you understand them and what you can do about them if they are not reporting accurately.

When you apply for credit, the potential lender goes to the three main credit bureaus, (Equifax, Experian, and TransUnion), to review your credit report.  There are many other CRAs as well, but these three have emerged as the primary sources of credit reports.  Your credit report contains information about your bill payment history, current loans and debts, and other financial information.  It usually also states your current address and the name of your employer, as well as past addresses and employers.  Finally, a credit report may include whether you’ve been sued in the past or filed for bankruptcy. Negative information about you can stay on your credit report for seven to ten years.

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Should a Chapter 7 Debtor Reaffirm on a Home Mortgage?

There are two assets that the majority of Debtors filing bankruptcy under Chapter 7 want to keep if they can:  their car and their home.  While they want to wipe out (discharge) their unsecured debts, they are willing to keep paying their car loans and home mortgages.  And the lenders on both are also eager for the Debtors to keep paying them and keep the collateral, so long as the Debtors are current on those loans. Lenders may prepare contracts to re-commit the Debtor to the terms of the original loan agreement and send them to the Debtor’s attorney for signature by both the Debtor and the attorney, and eventual filing with the Bankruptcy Court.  The Court will approve them, so long as continuing to pay is not an “undue hardship” on the Debtor, meaning that there is enough income left over to make those payments after other monthly living expenses are paid.  These contracts are known as “reaffirmation agreements” or, for short, “reaffs”.

The important thing for a Debtor to understand is that entering into a reaff removes this Lender from the protection of the bankruptcy discharge.  If the Debtor cannot continue to make the payments on the car or house, the Lender can not only take back its collateral, but the reaff gives the Lender the right to go after the Debtor personally for any portion of the balance owed that the sale of the collateral doesn’t cover.  Therefore, entering into a reaffirmation agreement actually benefits the Lender more than the Debtor.

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Does the Automatic Stay in the Bankruptcy Law Prevent a Landlord from Being Able to Evict the Tenant on a Residential Lease?

You are probably aware that when you file a bankruptcy, an “automatic stay” goes into effect right away, which means that none of your creditors can take any further action against you without first getting the approval of the bankruptcy court.  Therefore, if anyone is suing you, that lawsuit has to stop and, if it’s for money damages against you, will most likely be dismissed.  Even if you are in the middle of a divorce action, those proceedings are frozen during the pendency of the bankruptcy action, or at least until an order of relief from stay to go forward is granted by the Bankruptcy Court.

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The Student Loan Mess: Is There Any Relief in Sight?

I am finding that the hottest topic right now among those who work with bankruptcies is the overwhelming amount of student debt that burdens so many people for years and even decades after they’ve left school.  Currently, there are few ways that people can try to deal with their student loans when they can’t afford to make their payments, such as teaching or practicing medicine in underserved areas for a certain number of years[1], or income-driven plan arrangements through the U.S. Department of Education.  Discharging student loan debt in bankruptcy is not an option unless the debtor’s financial situation is virtually hopeless.

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What Can You Do with a Car That the Lender Refuses to Take Back?

Many people, when filing bankruptcy, want to give back (surrender) their vehicles to the lender who holds their car loans.  The theory is that the lender will take possession and then re-sell the car, and the debtor will get a discharge of that entire debt in the bankruptcy.   If a chapter 7 debtor states on his Statement of Intention that he is surrendering the vehicle, then the debt will be wiped out when the bankruptcy is discharged.

The problem arises when the car is worth significantly less than what’s owed to the lender, and therefore the lender refuses to accept the car back.  You now have the car, but the lender is holding the title.  You can’t sell or trash the car without the title, and — guess what– the lender doesn’t want to give up the title unless you pay what you owe!  Neat little game they’ve got going there, isn’t it?  What can you now do with the car?  Unfortunately, it’s a scenario that’s been playing out frequently over the past few years.

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Can Non-Citizens File Bankruptcy?

There is a lot of discussion now about whether people from foreign countries who live and work in the United States without seeking citizenship should be entitled to the same rights as citizens. Since these non-citizens are consumers who almost certainly will accumulate debt, they may wonder if they can seek relief from their debts under the bankruptcy laws, or whether that right is specifically limited to people who are citizens.

Actually, the bankruptcy laws allow non-citizens to file. The Bankruptcy Code defines “a debtor” as “a person that resides or has a domicile, place of business, or property in the United States,” without requiring that person be a citizen. Therefore, the right to seek relief under the bankruptcy laws is available to both citizens and non-citizens, so long as they can prove they make their home here.

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How Changing the Character of your Assets to Protect Them Can Work Against You

An interesting situation came up recently in an online discussion between bankruptcy attorneys.  A client had received a workers’ compensation award of several thousand dollars within the past few months.  He used it to buy his girlfriend a car, and then filed a chapter 7 bankruptcy to wipe out his creditors.

If the money had remained in his bank account, he could have claimed it as exempt, meaning it would have been protected from claims by the bankruptcy trustee on behalf of his creditors.  Workers’ compensation benefits are sheltered from being seized by creditors under both Ohio and federal exemption laws.

However, the workers’ compensation award is not in the bank anymore.  He had to identify it, however, on his Statement of Financial Affairs where he was asked 1) what monies he’s received over the past 3 years other than from his employment,  2) what payments he’s made that benefited an “insider”, 3) what gifts of over $600 he has made to any person within the two years before he filed, and/or 4) what transfers of property he’s made.  If he fails to disclose that information, his bankruptcy filing will be fraudulent. Therefore, the Trustee is going to see the award he received, and will inquire as to what it was used for.  A gift to his girlfriend to purchase a car is not exempt from the reach of the Trustee.  Moreover, the attorneys believe, probably rightly, that the car was put into the girlfriend’s name purposefully to protect it from the man’s creditors. [Read more…]

CAN YOU BE SUED FOR HELPING SOMEONE IN AN EMERGENCY?

Most of us are sympathetic if we see someone involved in an emergency situation.  If we witnessed a car crash where people appeared to be injured, we would not hesitate to phone for help.  If we saw someone fall off a ladder, we would call 911.  But have you ever considered whether you’d be the type of person who might try to take some action to save a victim from some peril he was in?

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WILL A BANKRUPTCY FILING AFFECT MY FUTURE CREDIT RATING?

You may be thinking that your debts are out of control, and that perhaps you should be looking into filing a bankruptcy. On the other hand, you are concerned that if you do file a bankruptcy, then your credit rating will take a big hit. How a bankruptcy would affect your credit score is a valid issue to consider, and is actually one of the most common concerns people have when considering how to deal with their debts.

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