This is Alisa Admiral. I have over 12 years experience representing Debtors in bankruptcy. If you fit the description above, I strongly suggest that you make an appointment to come in for a free consultation. We may even be able to set you up with an e-consult online. It costs nothing but some of your time to see if bankruptcy is even an option for you!

 

For those of you that are still in the "kicking the tires" stage, check in here every so often for information. I will try to post informative articles and videos relating to Chapter 7 and Chapter 13 personal and business bankruptcy, information on foreclosures and news in the areas of debt collection and credit reporting.

 

Thanks for visiting our website.

 

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You have to also file a Notice of Stay in the local court that issued the garnishment order and notify the creditor, the creditor's lawyer and the sheriff or other garnishing agency. Common sense will tell you if you don't let everyone involved immediately know that you filed the bankruptcy, it will take much longer for the garnishment to stop. After the bankruptcy is filed and the parties to the garnishment are notified, only FUTURE garnishments will be stopped. What about getting back the money that was previously garnished? This is a much trickier issue. It is possible to recover this money if certain conditions are met. First of all, if the money has already been turned over to the creditor it is very difficult, if not impossible, to get it returned. This is because of a California law that gives a judgment creditor a lien on the money seized. If, however, the money is still in the hands of the bank, employer or sheriff, it may be possible to have it returned. Secondly, the money has to be exempt. If not, the money might end up just going to the bankruptcy trustee, so it would not be worth the fight to have it returned. If the money is exempt, then you can file a motion with the bankruptcy court asking the judge to order the money released and returned to you. There are a few different grounds to base the motion on, all of which require a fairly comprehensive understanding of bankruptcy law. And some judges will require you to file an adversary proceeding (lawsuit) to have the money returned rather than a motion. If you have a garnishment, it is usually best to have a competent attorney represent you in trying to stop the future garnishments and having money from prior garnishments returned.

 

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What a Half Million Unwary Consumers Don't Know: Schemes Only Work for 1 in 10 Who Pay for Them; Consumer Alert: Debt Settlement Programs Seen as "#1 Threat to America's Most Indebted Consumers."

 

WASHINGTON, D.C. October 17, 2012 As few as one in 10 unwary consumers who are lured into so-called "debt settlement" schemes actually end up debt free in the promised period of time, making the risky schemes the No. 1 threat facing America's most deeply indebted Americans, according to a major new consumer alert issued today by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA).

 

Available online at http://www.nacba.org, the NACBA consumer alert notes: "Already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, America's most deeply indebted consumers are now falling victim to a major new threat: so-called 'debt settlement' schemes that promise to make clients 'debt free' in a relatively short period of time. Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses. Even the industry acknowledges though not in its ever-present radio and online advertising that debt settlement schemes fail to work for about two thirds of clients. Federal and state officials put the debt-settlement success rate even lower at about one in 10 cases meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome."

 

The private debt-settlement industry remains robust. More than 500,000 Americans with approximately $15 billion of debt are currently enrolled in debt settlement programs, according to industry estimates. And there is room for further growth: One in 8 U.S. households has more than $10,000 in credit card debt.

 

Durham, NC bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president, said: "Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America's most deeply indebted consumers today. Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn. These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score."

 

Earlier this year, NACBA focused national attention on the "student debt bomb," which then was identified as the fastest growing consumer debt problem being handled by consumer bankruptcy attorneys.

 

Richard Thompson, a Rialto, California, retiree and victim of a debt settlement scheme, said: "I was told they could settle my $89,000 in debts for a total of $39,000 if I made payments of $1,800 for 22 months. I was contacted about a chance to settle $15,000 debt for $6,000 but my debt-settlement company ignored the offer. In fact, I paid them a total of $25,200 as they kept on ignoring settlement offers from creditors. I thought they were taking care of me by bringing my debt down, but all they were doing was taking my money. I ended up with $25,000 more in debt than I started out with. Before I retired I worked 12 years as a manager, now I have had to go back to work as a part-time security guard to help make ends meet."

 

Bankruptcy attorney Trisha Connors, a NACBA member from Glen Rock, New Jersey who has testified before the New Jersey Law Revision Commission on debt settlement abuses, said: "Over the last three years, I have worked with 12 different for-profit debt settlement companies and over 25 clients who came to me after their debt settlement program failed to serve them. The results with each client were the same: exorbitant fees being paid, settlement (at best) of one small credit card debt, and mounting late fees and penalty interest charges on the unsettled debts. When clients informed the debt settlement companies of their desire to exit the program, the firms kept all or most of the accumulated savings for debt reduction as 'fees.' Every person I dealt with who had been current on their debts prior to contacting a debt settlement program told me that the sales representative told him the only way to be successful in the program is to stop paying credit card bills."

 

Ellen Harnick, senior policy counsel, Center for Responsible Lending, said: "Debt settlement companies require clients to default on their debts before they will negotiate. This adds late fees and penalty interest to their debt and frequently results in the client being sued by creditors. Since only a tiny proportion of debts are actually settled by these companies, clients are typically left worse off than they were when they started."

 

In addition to highlighting the stories of three victims of debt settlement schemes, the NACBA consumer alert notes the following:

 

• There is now across-the-board agreement on the danger that debt settlement schemes pose to consumers. The Better Business Bureau has designated debt settlement as an "inherently problematic business." Similarly, the New York City Department of Consumer Affairs called debt settlement "the single greatest consumer fraud of the year." Across the country, the U.S. Government Accountability Office (GAO), the Federal Trade Commission, 41 state attorneys general, consumer and legal services entities, and consumer bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of debt settlement companies.
• Debt settlement schemes encourage consumers to default on their debts. Because creditors frequently will not negotiate reduced balances with consumers who are still current on their bills, debt settlement companies often instruct their clients to stop making monthly payments, explaining that they will negotiate a settlement with funds the client has paid in lieu of their monthly debt repayments. Once the client defaults, he or she faces fines, penalties, higher interest rates, and are subjected to increasingly aggressive debt-collection efforts including litigation and wage garnishment. Consequently, consumers often find themselves worse off than when the process of debt settlement began: They are deeper in debt, with their credit scores severely harmed.
• "Self help" may be the best answer for smaller debt burdens. If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may be able to negotiate favorable settlement terms with the creditor yourself. Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt so you will need that much cash for a successful offer. Be sure to get an explicit written document from the creditor spelling out the terms of the debt settlement and relieving you of any future liability. Also be prepared to pay income taxes on any of the forgiven debt.
• Nonprofit credit counseling agencies can help, but must be vetted carefully. If, like most people, you owe multiple creditors and do not have the cash on hand to settle those debts, you may want to consult a non-profit credit counseling agency to see if there is a way for you to get out of debt. But make sure to check it out first: Just because an organization says it's a "nonprofit" there is no guarantee that its services are free, affordable or even legitimate. Some credit counseling organizations charge high fees (which may not be obvious initially) or urge consumers to make "voluntary" contributions that may lead to more debt. The federal government maintains a list of government-approved credit counseling organizations, by state, at www.usdoj.gov/ust. If a credit counseling organization says it is "government approved," check them out first.
• Bankruptcy will be an option for some consumers. Bankruptcy is a legal proceeding that offers a fresh start for people who face financial difficulty and can't repay their debts. If you are facing foreclosure, repossession of your car, wage garnishment, utility shut-off or other debt collection activity, bankruptcy may be the only option available for stopping those actions. There are two primary types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 13 allows people with a stable income to keep property, such as a house or car, which they may otherwise lose through foreclosure or repossession. In a Chapter 13 proceeding, the bankruptcy court approves a repayment plan that allows you to pay your debts during a three to five year period. After you have made all the payments under the plan, you receive a discharge of all or most remaining debts. For tax purposes, a person filing for bankruptcy is considered insolvent and the forgiven debt is not considered income. Chapter 7 also eliminates most debts without tax consequences, and without any loss of property in over 90 percent of cases. To learn more about bankruptcy and whether it makes sense for you, go to http://www.nacba.org/Home/AttorneyFinderV2.aspx.

 

NACBA urges consumers to steer clear of any companies that:

 

• Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet is to contact the creditor directly as soon as you have problems making payments.
• Require substantial monthly service fees and demand payment of a percentage of what they've supposedly saved you. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee a percentage of the money you've allegedly saved.
• Tell you to stop making payments or to stop communicating with your creditors. If you stop making payments on a credit card or other debts, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score will also suffer as a result of not making payments.
• Suggest that there is only a small likelihood that you will be sued by creditors. In fact, this is a likely outcome. Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against you. Creditors have the right to sue you to recover the money you owe. And sometimes when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.
• State that they can remove accurate negative information from your credit report. No company or person can remove negative information from your credit report that is accurate and timely.

 

Boltz emphasized: "Many different kinds of services claim to help people with debt problems. The truth is that no single solution works in all cases. Bankruptcy is an option that makes sense for some consumers, but it's not for everyone. For example, the National Association of Consumer Bankruptcy Attorneys and its individual consumer bankruptcy attorney members do not encourage every person who looks at bankruptcy to enter into it. What makes sense for each consumer will depend on their individual circumstances. We encourage everyone to get the facts and do what makes the most sense in their situation."

 

ABOUT NACBA

 

The National Association of Consumer Bankruptcy Attorneys (http://www.nacba.org) is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Formed in 1992, NACBA now has more than 4,000 members located in all 50 states and Puerto Rico.

 

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Essentially, the Debtor in bankruptcy must file an adversary proceeding (lawsuit) against his or her student loan lender(s) in the bankruptcy and prove that having to repay the student loan(s) would impose a severe hardship on the debtor and his or her family. This is extremely difficult (and fairly expensive) to prove. To prove undue hardship under current case law, you must establish the following three factors: (1) if you are forced to repay the loan, you would not be able to maintain a minimal standard of living; (2) this situation is likely to continue for a significant portion of the loan repayment period, and (3) you have made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years). Part of the difficulty in proving undue hardship is the flexible payment arrangements offered by the loan servicers such as income based repayment plans, and the relatively recent program that allows student loan debtors to pay 25% of their income for 12 years and have any remaining balance due be forgiven. Also, a great number of debtors can't even request a hardship discharge because few, if any payments have ever been made on their loans. As you might expect, actual student loan discharges in bankruptcy are extremely rare, and when they are given, the Court has the option of ordering a partial discharge only eliminating enough of the debt to allow the debtor to enjoy a minimal standard of living while repaying the non-discharged portion of the loan. In practice, hardship discharges are typically only given where the debtor is proven to be permanently disabled, and then only if there was a good faith effort to repay the debt prior to filing the bankruptcy. And because of the low rate of success for Debtors, the cases are vigorously defended by the student loan lenders causing the retainers charged by most debtors attorneys to be rather high.

 

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A garnishment based on an ordinary debt is limited to 25% of your pay after taxes and mandatory deductions. A garnishment for past-due child support can be up to 60% of your pay. However, in any garnishment you must be left with at least 30 times the hourly minimum wage per week in your check. The wage garnishment can remain in place until the judgment is paid. Unless you can make a deal with the creditor or pay the debt off, there are only two methods to stop a garnishment based on a judgment. The first is to file a claim of exemption with the Sheriff. The Sheriff can provide you with the exemption form and a financial affidavit. You complete these forms to try to show that you should not be subject to a garnishment because you need your entire paycheck just to provide the necessities of life for yourself and your dependents. If the creditor objects, however, then the exemption claim is set for hearing and a judge decides if your wages should be garnished for the full amount, a partial amount or not at all. Wages will continue to be deducted from your check and held by the Sheriff until the judge renders a decision. The second way to stop a garnishment is to file for bankruptcy protection. Once you file any bankruptcy case, wage garnishments must stop. This doesn't happen automatically, though. You must serve a notice of the bankruptcy filing on the Sheriff (and the creditor) and have the Sheriff issue a release of the garnishment to your employer. It is good practice to serve the bankruptcy notice on your employer as well. Assuming that you receive a discharge of the debt in the bankruptcy case, the garnishment can never be re-instituted. Note, however, that child support is not discharged in bankruptcy so the garnishment can resume after your case is over (or even earlier if the child support creditor obtains permission from the bankruptcy court).

 

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Having said that, it is sometimes possible to eliminate income tax debt (both State and Federal) through bankruptcy. The basic rule is that the taxes must have been due more than 3 years prior to the bankruptcy filing. For instance, tax returns for 2011 were due on April 17, 2012. So at very minimum, any income taxes owed for 2011 cannot be discharged in bankruptcy unless the case is filed after April 17, 2015. Moreover, if you requested an extension to file your taxes, then the three year period starts running at the end of the extension period. The second rule is that the income tax return must have actually been been filed, by the taxpayer, at least two years before the bankruptcy. So using our example, if you file a bankruptcy on April 18, 2015 hoping to discharge 2011 taxes but you only file the 2011 tax return a few months before filing the bankruptcy, then the 2011 taxes cannot be discharged. The third rule is that that taxes must have been assessed at least 240 days before the bankruptcy filing. Assessment typically occurs when the IRS accepts your tax return (usually within a few weeks of you filing it). However, if there is a dispute or later audit causing the amount owed to be adjusted, you cannot file a bankruptcy to discharge that tax year until the total amount due has been finalized (assessed) for the required 240 days. There are, as mentioned, additional complications. For instance, the time periods are tolled (extended) for various events such as making an offer-in-compromise or filing an intervening bankruptcy. Also, tax liens are not expunged from the records even after a chapter 7 discharge. And if a tax return is deemed fraudulent, the taxes would not be dischargable. You MUST have competent legal advice before attempting to discharge income taxes in bankruptcy. Even with such advice, it may simply not be possible to eliminate all of your income tax debt. In such cases, it may be better to bypass Chapter 7 bankruptcy and instead file a Chapter 13 bankruptcy. In a Chapter 13, it may be possible to eliminate those taxes that CAN be eliminated, pay those that can't frequently without interest or penalty and obtain a lien release upon discharge. Of course, you have to qualify in the first place for whichever chapter you are attempting to file.

 

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The first condition is that your home must be appraised for less than the outstanding balance of the first mortgage. Stated another way the home must be "underwater" with regard to the first mortgage only. If this is the case, then there is no equity whatsoever to support the second mortgage. The second condition is that your income must neither be too high nor too low depending upon your family size and other factors. If your income is too high, then even though you can strip the second mortgage lien you may end up having to pay back a large portion (or possibly all) of the second mortgage debt under your Chapter 13 or Chapter 11 plan of reorganization. This obviously would defeat the whole purpose of "stripping" the mortgage lien. If your income is too low, you may not be able to get the bankruptcy plan of reorganization approved because it is not viable. Assuming that the value of the home and your income levels are ripe for a lien-strip, the third condition is that you must, within your bankruptcy case, file the appropriate proceeding and successfully obtain a court order stripping the second mortgage. The mortage company has the right to oppose this proceeding (assuming that grounds to oppose exist). The fourth condition is that you must obtain court approval of your overall bankruptcy plan of reorganization. The fifth condition is that you must successfully complete the approved plan or reorganization and obtain a discharge in your bankruptcy case. Remember, these rules apply only to your principal residence. A whole different set of rules apply to rental and investment property, which will be the subject of another blog.

 

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The proper question to ask your lawyer is not "do I have to list all of my debts" the proper question instead is "how can I treat (certain debts) that are important to me?" For instance, you may have a car and a corresponding car payment. Yes you have to list your car as well as the loan on it in the bankruptcy. You may, however, choose to keep the car by continuing to repay the loan according to it's terms (some lenders in Chapter 7 will require you to sign a reaffirmation agreement which is not discussed here). Or you could choose not to repay the loan but then you would have to surrender the car back to the lender. Or, in a Chapter 13 only, you may be able to modify the loan, depending on your circumstances. Home mortgages work in similar way but are much more complicated. But these are all secured debts. What about unsecured debt, like a credit card, a store card or an over-draft line attached to your bank account? These too are required to be listed if there is a balance owed. If there is not a balance owed, they are simply revolving lines of credit and are not debts therefore they do not have to be listed. In this case you could get lucky and have the line of credit survive the bankruptcy although very often the lenders eventually find out about the bankruptcy and close the line of credit anyway. At our law firm, we recommend that you over-include creditors (listing even those creditors that have been paid off). This way, if there is ever an issue about whether you owe them money, you can use the bankruptcy as a defense to payment. A common reason people want to omit an unsecured debt from their bankruptcy is that they feel a moral obligation to repay certain people like their doctors, accountants or friends and family. Listen - the bankruptcy code says that you must list ALL debts, and that your creditors cannot try to collect on debt that is includeable in your bankruptcy.However, there is no rule against voluntarily repaying a debt once your bankruptcy has been discharged!

 

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Attorneys Fees vary widely based upon the experience and quality of the attorney and the complexity of the case. In this market, consumer cases are usually handled on a "flat fee". That is the attorney will charge a set amount for consulting with you, preparing your case and appearing in court. Under existing case law, this fee must be paid to the attorney prior to filing your case. Once the case is filed and you receive a discharge, the fee is uncollectable. In a simple, individual consumer chapter 7 case, the flat fee is typically set to cover about 3-4 hours of attorney time (around $900 to $1600). However, the more complicated a case is, the higher the fee will be. Also, if problems come up in a case that has been filed (perhaps a creditor challenges the case, or undisclosed assets are discovered) additional fees would most likely be incurred at the attorney's hourly rate. This why it is so important to disclose everything to your attorney to make sure there are no surprises after the case is filed! Attorney fees in a chapter 13 bankruptcy are typically higher than in a chapter 7. In this jurisdiction, total chapter 13 fees typically run around $4000 to $5000. However, in a chapter 13, you make payments to the bankruptcy trustee over a 3 to 5 year period (which payments are used by the trustee to pay a portion of your debt). Most attorneys accept some of their fees through this payment plan. For example, in a fairly straight forward consumer chapter 13, you may put down $1500 in attorneys fees, and the attorney would then collect the balance of $2500 through your bankruptcy payments to the trustee. Again. the more complicated a case, the higher the fees. People that are self employed can expect to pay more for a bankruptcy, as can people that have assets to protect or income issues. And if a person or business doesn't qualify for chapter 7 or 13, Chapter 11 bankrutpcy is a possibility. Because of the complex nature of a chapter 11 case, the fees (and costs) are much, much higher. But that is beyond the scope of this article.

 

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Specifically, if you have fallen behind on the mortgage payments, you are allowed, under chapter 13, to catch-up ("cure") the back-payments over time, and without interest. But you have to remain current on the regular payments while you are doing it. The second exception is for second mortgages (including home equity loans, pool loans and the like). If you can show that the home is "underwater" with regard to the first mortgage (that is the amount owed on the first mortgage exceeds the value of the home) then you can completely eliminate the second mortgage in Chapter 13. This is known as "lien-stripping". However, you may still have to pay some of this stripped mortgage back depending upon your income level. Also, a plan to strip the second mortgage may have an impact as to whether or not you qualify to file a chapter 13 in the first place! It may be possible to "cram down" a mortgage on investment or rental property. Cram-down refers to the bankruptcy practice of paying the mortgage company the value of the property, plus interest, instead of repaying the full loan amount. However, there are numerous obstacles to overcome in trying to get a cram-down approved. First, there is the issue of valuation. The mortage company might disagree on the value of the property -at which point there would have to be an evidentiary hearing to determine valuation. Assuming the valuation issue is resolved, a second obstacle is that the bankruptcy code requires you to pay the full cram-down amount plus interest amortized over a maximum of 5 years, which typically results in a large monthly payment obligation. The third obstacle is proving that the rents coming in off the property are sufficient to pay this 5-year payment obligation to the mortage company (that is YOU are not subsidizing the cram down with money that could be used to pay other debts back). The fourth obstacle is a two edged sword making sure that your income is not so low that you can't afford to be in the chapter 13, and not so high that you end up having to pay back more than the cram-down value. So in a nutshell, a modification or cram-down cannot be done in Chapter 13 on the home that you live in, although you can use a chapter 13 to catch up your first mortage and/or eliminate you second mortage. And although a mortgage on rental or investment property can be crammed-down, it really only works for very low end properties which have a solid stream of rental income. And regardless of the situation, you must be eligible for chapter 13 in the first intance and have income within the proper range to make your plan work.

 

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However, each state has a list of things that you can protect from the claims of your creditors or your bankruptcy trustee. These things are EXEMPT from being seized, and hence are called EXEMPTIONS. The exemptions that apply to a specific case frequently depends upon a number of factors, such as which state that the bankrutpcy was filed in, the length of time the debtor resided in that state, the length of time the debtor owned the particular asset, the value of the asset and other such inquries. If you qualify for California exemptions in your bankruptcy, you must determine which set of exemptions best suit your needs. California is one of the few states that allows you to choose between two sets of exemptions. As a general rule, one set is more favorable to homeowners and the other is more favorable to renters, although a careful analysis of your situation may yield different results. But be careful: any of your assets that are not protected (non-exempt assets) can be seized by the bankruptcy trustee, sold and the money used to pay your debts! However, if you have non-exempt assets and instead file for Chapter 13, your assets would not be seized, but they would be included in the anlysis to determine how much of your debt you will have to repay out of your earnings over the life of your plan of reorganziation (which typically runs 3-5 years). In short don't file bankruptcy alone. Sure it costs money to hire a lawyer but that lawyer may save you many times over in the long run!

 

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The post follows:

 

It's a vicious cycle. Many families in this country cannot afford the skyrocketing cost of higher education without student loans. But many graduates cannot find a job and cannot pay off the loans. As a result, they wind up in a much deeper hole (as the interest and collection fees accrue) with no way out.

 

Student loan debt in the U.S. now totals more than $1 trillion. That's more than all the outstanding credit card debt in the country.

 

A recent report by the National Association of Consumer Bankruptcy Attorneys found that both students and parents are borrowing at record rates.

 

College seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year. Parents had an average of $34,000 in student loans for their children. The report says the number of these parental loans has jumped 75 percent since 2005-2006.

 

"These are enormous numbers," says Ike Shulman, a bankruptcy attorney in San Jose, Calif. "They're basically setting us up for having a large number of fellow citizens become economically non-functional for the rest of their adult lives."

 

Growing numbers of people are being crushed by this debt unable to pay and unable to get relief. A recent nationwide survey of bankruptcy attorneys by NACBA found that most (81 percent) had seen a spike in the number of people with student loan debt looking for help. But in most cases, there is nothing a lawyer can do.

 

Current law makes it almost impossible to discharge student loan debt through bankruptcy. And unlike other unsecured debt, there is no statute of limitations on student loans. Lenders can pursue borrowers to the grave.

 

"It's not fair and it needs to be corrected," says NACBA president William Brewer. "It is a debt bomb that could cripple our society."

 

The association's report says the country faces a serious economic threat from this growing mountain of student debt, one that could be every bit as devastating as the mortgage meltdown.

 

"This will be a drag on the economy for the foreseeable future," warns John Roa, an attorney with the National Consumer Law Center and NACBA's vice president.

 

It's a problem for students and parents who co-signed loans Dave Ingham, a disabled Vietnam veteran who lives in Minneapolis, fears he could lose his savings and his house because he co-signed student loans now in default for his son. Ingham is being sued by collectors.

 

His son Shannon has been unable to find work since October 2009. He's now been diagnosed with acute anxiety disorder and depression. He's still looking for work, but his father says the loan defaults keep him from getting hired.

 

"It seems that whenever he comes close to a job interview, they run a credit check, see his loan defaults and the interview does not proceed," Ingham said at a recent telephone news conference arranged by NACBA.

 

Can something be done? With student loans backed by the federal government, someone in trouble can try to get the payments deferred or modified. There are even loan forgiveness programs. With private loans, it's pay or end up in default.

 

The National Association of Consumer Bankruptcy Attorneys wants a "safety net" under student loans, just as there is for other consumer lending.

 

If you start a business that fails, they point out, you can file for bankruptcy and go on with your life. But college students or their parents don't have the same protection.

 

"We need to make some common sense reforms, something like creating an escape valve to relieve some of the pressure before the whole thing blows sky high," says NACBA vice president John Roa. "There's no way to diffuse this bomb if the status quo remains the same."

 

NACBA wants Congress to roll back the bankruptcy code to 1978, when borrowers who couldn't pay off their student loans (private or government-guaranteed) could discharge that debt in bankruptcy.

 

Rep. Steve Cohen, (D-Tennessee), has introduced a bill, H.R. 2028: Private Student Loan Bankruptcy Fairness Act, which would treat private student loan debt the same as other consumer debt.

 

Congressman Cohen says his bill would "restore fair treatment to Americans in severe financial distress" and give "an honest but unfortunate debtor a chance for a financial fresh start."

 

The bill is supported by the American Association of Community Colleges, the American Association of State Colleges and Universities, the American Council on Education and the American Federation of Teachers, as well as various consumer groups. There is currently no formal opposition.

 

The idea of making it easier to discharge student loan debt via bankruptcy will not sit well with those who backed bankruptcy reforms passed in 2005. Clearly, getting the law changed is a long-shot.

 

Dave Ingham says he doesn't know how to solve the current situation. But he believes something should be done before others face the same financial ruin he does.

 

"It's something that's really out of control," Ingham says. "There are thousands and thousands of us out there who need help with this situation. Please do not give up on us."

 

 

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Not all transfers prior to bankruptcy are considered fraudulent. For instance, if you sell a $5000 boat to someone and you receive about $5000 for it, the transfer would not be considered fraudulent. However, if you sold that same boat to your brother-in-law for $1, you may be getting your brother-in-law involved in a lawsuit to have the boat returned. In this case, you might be putting your bankruptcy discharge at risk and your brother-in-law might be somewhat unhappy with you! The general rule is that if a transfer is made within a year prior to filing the bankruptcy, and you did not receive "reasonably equivalent value" for the item transferred, the transfer is PRESUMED TO BE FRAUDULENT as to your creditors and the bankruptcy trustee. Even going back more than a year, if you give property away without a good reason, under conditions which make it appear that you were trying to hide the property from your creditors or an eventual bankruptcy trustee, then the transfer could be determined by a judge to be fraudulent and the transfer could be reversed and the property seized. And of course if any of your pre-bankruptcy activity is determined to be fraudulent, there is a likelihood that you could lose your bankruptcy discharge or worse! Fraudulent transfers are not to be confused with preferential transfers which are discussed in an earlier blog. In our example let's say that you gave that boat to your brother-in-law a couple of months before filing bankruptcy because you legitimately owed him $5000. This creates a different problem it is not fraudulent (you did receive value for the boat in that you paid off the debt to your brother-in-law) but nevertheless the transfer can be undone because you are not allowed to pay debts to family members within a year prior to filing bankruptcy under the PREFERENTIAL TRANSFER rules! Bottom line make sure that you speak honestly with an attorney before deciding to go forward with your bankruptcy filing!

 

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People who are "underwater" on their homes and need/want to get out from under the home have to either short sell (which requires the lenders approval) or else allow the lender to foreclose. Now, some lenders, in order to avoid foreclosing on the home, have offered up to $35,000 to homeowners who agree to short sell their homes. This represents quite a change from the past, where lenders were not willing to enter into short sale arrangements. Now, lenders appear much more amenable to the short sale, by doing things such as fast tracking the approval and closing process, paying some money to second lienholders, waiving their right to pursue deficiency balances, and now even offering cash incentives to the homeowner. This is in addition to the $3000 available to a short seller under the Home Affordable Foreclosure Alternatives program, which offers $3,000 to qualifying homeowners who complete a short sale.

 

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There are, of course, many other considerations before deciding if a person should file a chapter 7, a chapter 13, a chapter 11 or any bankruptcy at all. But looking strictly at the means test we begin with an analysis of the Debtors gross (pre-tax) household income, from all sources (except social security) received in the 6 months prior to the month of filing. If the monthly average of that income is less than the state's median income for the Debtors family size, then there is a presumption that the debtor is eligible (based upon income only) to file a chapter 7 bankruptcy. If the household income is more than the state median,then an analysis of the Debtor's allowed monthly expenses is made to determine if, after factoring in those allowed expenses, the Debtor would have any money left over each month to fund a repayment plan. If there is enough money left after these expenses are taken into account, then there is a presumption that the Debtor is not eligible for chapter 7 and must file a reorganization and pay back some or sometimes all debt. This typically means that the Debtor will file a chapter 13, assuming that they are otherwise eligible for that chapter. There are, as always, exceptions. For instance, a Debtor who passes the means test but has recently obtained a high paying job may still not qualify for a chapter 7. On the other hand, a person that does not pass the means test might have special circumstances that would nevertheless allow the filing of a chapter 7. These are issues that you would want to consult a lawyer to resolve, And as I stated there are other factors to review such as assets you might lose, debts that you are required to repay, mortgages that you might want to eliminate, and so on before deciding if (and which chapter) you should file.

 

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This is why you may have heard that you are not supposed to pay your unsecured debts right before filing bankruptcy. Unsecured means that there is no collateral for the debt. So it is perfectly OK to pay a legitimate car loan or mortgage right up to the bankruptcy filing assuming that you are keeping the car, house or other collateral associated with the debt. But, in a consumer case, you should not pay back a credit card, medical bill or other unsecured debt more than $600 in the 90 days before filing the bankruptcy and you also should not repay unsecured loans from friends, family or partners for a FULL YEAR prior to filing the bankruptcy. If you do, the Chapter 7 Bankruptcy Trustee may well be able to recover those payments back from the person you gave them to! The idea is that the trustee will get the money back and distribute it more fairly after first deducting the trustee's fees and expenses for doing so! As you might guess, it is unlikely that a Chapter 7 bankruptcy is going to bother going through this fairly complicated and lengthy procedure just to recover a few hundred dollars. But if there is enough money involved, be prepared to have the very people that you were trying to protect from the bankruptcy get caught right up in the middle of it!

 

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