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20

Nov 2022

New! For Millions, Bankruptcy Help with Student Loans!

Posted by / in Blog /

Bankruptcy Can Now Help Millions with Student Loans!

Are you nine months or more behind on your student loans?  You are not alone. Typically, ten million Americans are at least nine months behind. And another million fall into that default category each year.  In early November 2022, the Biden Administration cast you a lifeline. For millions of people, bankruptcy can now help with student loans.

The Biden Didn’t Change the Law

The bankruptcy law says you can’t discharge–clear–your student loans unless you can show “undue hardship.”  Over the years, undue hardship came to mean “certainty of hopelessness,” paralyzed, never able to work again.  

Student needs bankruptcy help with student loans

Ten million American are more than nine months behind on their student loans. They may need to discharge their student loans in bankruptcy.

Biden Changed Government Policy

Last week’s announcement doesn’t change the law, but it does change government policy. The new policy is that the government will often help you if you come into court and try to discharge the student loans.  “In the interests of justice” they said, the government will recommend “that a bankruptcy court grant full or partial discharge of student loan debts in appropriate cases.” For the first time, instead of fighting tooth and nail, the government lawyers may be on your side.

Bankruptcy Help on Student Loans is Still Not a Sure Thing

Your student loan discharge is still not automatic.  We need to file a whole new set of papers–an adversary proceeding–to get it in front of the judge.  We need to persuade to the government to stay out or support you. And we still need the sign off the of bankruptcy judge, who has the final word.  

That’s why smart lawyers around the country are being very careful to start.  We want to begin with the really clear cases first–to get the government in the habit of helping and the judges in the habit of approving student loan discharges in these bankruptcy cases.  Then we can move on to some borderline ones.  

I joined a pop-up class sponsored by the American Bankruptcy Institute the next day after the changes were announced. And I’m registered next month for the three hour class by National Association of Consumer Bankruptcy Attorneys--0ur national group who patiently worked with the administration on this for nearly two years.  

I’ll post more info as it develops.

 

 

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08

Oct 2022

Once Up an Time: A Chapter 13 Story

Posted by / in Chapter 13, Chapter 13 Bankruptcy /

Once up a time: Widow Anna saves her house and clears her debt with Chapter 13.

Once up a time, an elderly widow named Anna needed to replace the HVAC in her townhouse. Her air conditioning broke down and she needed to fix it.

Anna was poor.  She had $1404 monthly from her retirement and $1232 from social security.  Her credit score was dragged down by the $33,000 she had on credit cards—even though the cards were all still current.

Mean Boys LLC offered to install and finance her HVAC—they put her in a seven-year lease for the HVAC at $146.00 month. It was a lease, not a purchase. At the end of the seven years (after paying $12,264) it would still NOT be paid for.

Chapter 13 cannot modify a consumer lease

Mean Boys LLC gave Anna a seven year lease on her heating and a/c unit. At the end of seven years, it still wouldn’t be paid for.

Anna didn’t have much choice—she needs to have AC in the summer and heat in the winter. But when she started to pay Mean Boys, her credit cards fell behind.

No wonder Anna’s credit cards fell behind! Her minimum payment on the credit cards was $991.

After paying her mortgage, her condo fee, and Mean Boys, she only had $967 left over.  She had to eat and pay utilities and car insurance, before trying to pay those credit cards.

That’s why Anna came to talk to Nice Bob, a bankruptcy lawyer.

Anna’s Chapter 13 payment plan $891 a month

Nice Bob, the bankruptcy lawyer, put Anna in a chapter 13 payment plan.  (Virginia law is NOT favorable to widows—or other single people—who want to file Chapter 7 bankruptcy and keep their house. That’s why Anna chose Chapter 13.) Chapter 13 is a payment plan. Nice Bob was able to get Anna approved for a Chapter 13 payment of $100 for 36 months.  That was $3600 to clear $33,000 in debts.

Nice Bob also set a trap for the Mean Boys, LLC.  Chapter 13 does NOT help a consumer who needs to reduce the payment on a lease.  (And Mean Boys LLC had very good lawyers—their HVAC lease was a very strong lease.)

Mean Boys LLC fall into Nice Bob’s trap

Mean Boys—sure enough—fell into the trap that Nice Bob set. They made a mistake and violated the “automatic stay.”  They could end up owing Nice Bob a couple thousand dollars in legal fees.

Nice Bob didn’t want those legal fees. Instead, he wanted to pressure Mean Boys to help Anna.  And that worked! Mean Boys agreed to cut their payment in half—from $146 a month down to $73. (That saved Anna $4234 over the remaining months of the lease.) 

Now Anna, our elderly widow, can keep her house, and her AC and heating. And live happily ever after.

PS This is a once upon a time. Any similarity to any living person or business is purely coincidental. 

 

(PPS.  Homeadvisor.com says the average cost of installing an HVAC system is $5845.  Anna’s condo is quite small, so a fair price might have been less than that average.) 

 

 

 

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18

Sep 2022

Chapter 13 and Tax Relief for Seniors Save Marian’s House

Posted by / in Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

Marian Saves Her House from Reverse Mortgage Foreclosure: She Filed Chapter 13 and Got Fairfax Senior Citizen Tax Relief

Before her husband died, Marian had taken out a reverse mortgage on her home. That way, they hoped, she wouldn’t have a house payment and she’d never have to worry about having a place to live.

But after a couple years, Marian got a reverse mortgage foreclosure notice.

In a Reverse Mortgage, You Don’t Have a Mortgage Payment But You Still Have the Tax Payment

Having a reverse mortgage does NOT mean you have a free place to live. You don’t have to pay the bank, but you still have to pay real estate taxes and insurance. Marion’s monthly tax was $390.00–lots cheaper than rent but not free.  

The reverse mortgage company paid the real estate taxes–but Marian was required to pay reverse mortgage company back. She didn’t understand (and didn’t have much money) and so she didn’t do it. For three years. That gave the reserve mortgage company the reason to foreclose her.

Chapter 13 in the Nick of Time

Marion’s house was scheduled to be sold out from under her on July 28. We filed Chapter 13 on July 27.  That stopped the foreclosure and the Chapter 13 plan gave her five years to pay the mortgage company back for those taxes.  Wew!

But Marion now has to make the chapter 13 payment. It’s $280 a month.

Fairfax County tax relief for seniors

Chapter 13 stopped the reverse mortgage foreclosure. Fairfax senior tax relief helped Marion afford the payments.

                                                  

Tax Relief for Seniors Saves the Day

On top of that $280 a month Chapter 13 payment, how can Marion pay next year’s real estate taxes?  Good news. Fairfax County–like most of the counties in Northern Virginia–has tax relief for low income seniors. (Here’s the info for Loudoun. And Prince William.) She applied and got approved. No more real estate taxes. Her budget is very tight, but she will save her house.  

PS  For More Info on Danger of Reverse Mortgage Foreclosure

What happened to Marian happens a lot. And not everybody moves fast enough to stop it. The Naples Daily News had this great article in 2019 about senior citizens in reverse mortgages who end up losing their homes in foreclosure.    

 

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10

Sep 2022

Settling Her Debts through Americor, Sheriff Brings a Warrant

Posted by / in Weekly Posts /

Trying to Settle Her Debts through Americor, Liz gets a Warrant in Debt

Liz was shocked when the sheriff brought a warrant in debt for her $2680 Victoria’s Secret account.

Sheriff brings a warrant in debt

How do you get a warrant in debt? A deputy sheriff can bring it. Or the creditor can hire a private process server.

Liz Tried to Settle Her Debts

Liz tried to settle her debts. She worked through Americor and gave them $664 per month. Victoria’s Secret was her biggest credit card, how come they hadn’t been taken care of.

She then looked at her credit report and saw only one account–CareCredit for $712–was reporting to the credit bureaus as “Settled for Less Than Full Balance.” Everybody else was just reporting “past due–charge off.” Her credit score was terrible.

Liz had been paying $664 a month to settle her debts. What had she gotten? Credit score in the low 500’s and the sheriff bringing warrant in debt papers to her door.

Bankruptcy Stops the Warrant in Debt

Frustrated and angry, Liz called me. I had done a bankruptcy for her once before back in 2011 and she remembered my name. With her new bankruptcy, the warrant in debt was blocked, and in four months, she was clear of credit card debts totalling $25,237. (Americor had told her it would take two years, and of course it didn’t work.)

Americor Reviews

PS Americor claims to be “The Nation’s Leading Provider of Consumer Credit & Debt Relief Solutions.” Mixed in with their really good Google reviews, are one-star reviews from people who had the same experience as Liz.

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15

Jul 2022

We knock out Dyck-O’Neal, Save Lonnie’s Clearance and his Family Home Place

Posted by / in Blog, Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

We knock out Dyck-O’Neal, Save Lonnie’s Clearance and his Family Home Place

Lonnie was about to lose his federal job. His clearance review showed he owed Dyck-O’Neal $127,153 from a foreclosure deficiency. He needed to take care of that. Or he’ll lose his clearance and his job.

Dyck-O'Neal buys foreclosure debts

After his foreclosure, Lonnie still owed Dyck-O’Neal $127,000.00

Obviously he didn’t have $127,153.  And when we looked at it, he couldn’t file Chapter 7 bankruptcy either.  When his parents died, Lonnie had inherited a share of their home place. The parents’ home place was paid for. A Chapter 7 bankruptcy trustee would take and sell it.

Chapter 13 Bankruptcy Payment Plan–How Can He Afford it?

He needed to do a Chapter 13 bankruptcy.  To protect his clearance by paying his debts.  And protect the family home place–by paying his debts.  But, in a Chapter 13 payment plan, how much would Lonnie has to pay?

The Chapter 13 trustee demanded a payment Lonnie couldn’t afford. The trustee didn’t want the whole $127,153.  But he wanted most of that to be paid.

We solved that problem by knocking out the Dyck-O’Neal $127,153 claim. We knocked them out under the statute of limitations.

What’s the Statute of Limitations

The statute of limitations is a law that says if a creditor leaves you alone too long, they are too late. More than five years after the mortgage company accelerated the loan (starting the foreclosure process) was too late.  (That’s five years under Virginia law. Each state sets their own rules on this.)

Based on the records we had, it looked like the five years was up. Dyke-O’Neal had more complete records than us–at least they should have. But they didn’t fight.  So, we won.

Now all Lonnie has to pay are the smaller debts he was paying anyway.

 

Don’t put it off

Foreclosure or repossession? Talk to a bankruptcy lawyer right away. You probably have eligibility now–you need to find out of course.  And in three or four years when they come after you, you might not.  (Lonnie could have filed Chapter 7 when the house foreclosed; after his parents died, then he couldn’t.) Usually relying on good luck doesn’t work real well. 

 

 

 

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25

Jun 2022

Linda Pays through Beyond Finance and Gets Garnished

Posted by / in Alternatives to bankruptcy, Chapter 13, Weekly Posts /

Linda Pays Mariner $6113 through Beyond Finance. Then She Gets Garnished

Linda Cash (not her real name) wanted to clear her debts without filing bankruptcy. As an alternative to bankruptcy, she signed up for Beyond Finance.

Linda needed Beyond Finance to help her with Mariner. (She originally borrowed $5383, got behind, and now owed Mariner $6113.65.) 

Beyond contacted Mariner and then told Linda “Congratulations–we’ve settled Mariner for $6113.65.”  In 29 installments, they told her.

Now, Linda thought $6113 was all she had to pay. She paid $213 per month; $213 was what Mariner told her to pay. At the end of 28 payments, she thought she had only $150.00 to go.

Bad surprise. Mariner wanted $6113.65 at 36% interest. Mariner had agreed to $213 a month until paid in full. It would take 66 months–not the 29 Beyond told her–to pay Mariner with interest.

How bad was it? Linda had paid $5964 and she still owed $4808.  (Of the $5964 she paid, $4681 had gone to interest.)

Linda complained to Beyond. Beyond didn’t explain.

She argued with Mariner. Mariner garnished her. That’s when Linda called me.

Bankruptcy Would Have Been Better

Linda is eligible for two kinds of personal bankruptcy.  Chapter 7 bankruptcy says “sorry I can’t pay this debt.”  Chapter 13 is a court approved payment plan.

Chapter 13 would have done what Linda wanted.

If Linda had signed up for chapter 13, the bankruptcy court would have made Mariner accepts payments at no interest. (The Chapter 13 trustee does charge a handling fee on each payment–so it would have taken 32 payments at $213 to pay off Mariner. Not the 29 payments Beyond promised her.  But way better than the 66 payment settlement from Mariner.)

Chapter 7 is Even Better

As a single person in Virginia making less than $67,815, Linda is eligible to file Chapter 7 bankruptcy. Chapter 7 discharges–clears–her finance company loans, like the one she had with Mariner. If she had filed Chapter 7 in the spring of 2019, instead of going to Beyond, she’d be back to good credit today.  She could get a car loan at a good rate, or even qualify for a mortgage and buy a house.

And she would have saved the $5964 she paid through Beyond to Mariner.

Beyond Finance is n alternative to bankruptcy

Linda thought Beyond Finance had settled her debts with Mariner with 29 payments of $213.00. But Mariner had only agreed to 66 payments of $213.  After the 29th payment, she stopped–and got garnished.

Beyond This Screwup

I don’t think Beyond was intentionally tricking Linda–they just screwed up. But I do say these debt settlement outfits are rarely a good idea.

Why Not Debt Settlement? Actually They Warn You

Here’s what it says in small print on the Beyond website.  “The use of debt consolidation services will likely adversely affect your credit. You may be subject to collections or lawsuits by creditors or collectors.”  In other words, if you sign up for their program, you will wreck your credit; then expect to get sued.  Probably not the best idea.

For people who really, really want to pay their debts, and need only a little help, I often recommend debt managment programs. They can usually get each payment down a little off the regular minimum monthly and still pay everybody off in five years.  Debt management plans have to be licensed in most states, including Virginia

Most legit debt managements programs (they are sometimes called credit counselling) won’t BS you. If they can’t make your budget work, they will tell you so, and suggest bankruptcy.

Other alternatives to bankruptcy

For other alternatives to bankruptcy, you can disappear. Or just don’t pay.

 

 

 

PS Why Does it Take So Long to Pay off a loan at 36%.  Here’s the chart:

 

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20

Jun 2022

Alternatives to Bankruptcy–Disappear

Posted by / in Alternatives to bankruptcy, Blog, Weekly Posts /

Alternatives to bankruptcy–disappear

One alternative to bankruptcy is to just disappear.  Why am I bringing this up, now?

cruise as an alternative to bankruptcy

Need an alternative to bankruptcy? You can try to disappear. Take a cruise, get off at the Virgin Islands, don’t get back on.

This week somebody asked Quora (a website I follow) how to legally disappear.  The answer, sign up for a Caribbean cruise. Get off at the Virgin Islands. Don’t get back on.

For most people, bankruptcy works. But when people ask me for alternatives, I share my best ideas.  I’ve added the Caribbean cruise to the list.  

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17

Jun 2022

One Way to Get Ready for Recession: Bankruptcy

Posted by / in Blog, Weekly Posts /

Get Ready for a Recession

Michelle Singletary in Wednesday’s Washington Post writes about getting ready for a recession.  Two pieces of her advice: clear your credit card debt; and start saving.

Recession ahead

Are you paying your debts down every month? Or are debts going up?  How will you get out of debt when the recession hits?

Suppose the recession hits hard ten months from now–April 2023.  Will your credit cards be paid off?  If there’s a lot of slack in your budget, then maybe you can get there.  But what if you are barely making it now?

Filing bankruptcy, for many people, is the quick and easy way to clear your credit card debt. And if you start now, your bankruptcy can be finished this year, so you can start saving.  

Before the recession: Take a hard look at your monthly payments

Take a look at where your monthly payments are going now, before the recession. Are you rapidly reducing your debt? Or only paying just enough on the cards that you can use them to buy groceries for another month? If you are not digging your way out of debt now–while inflation is still new and job openings are everywhere–you will never be able to do it when times get tight.

For most people, bankruptcy works.

 

 

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11

Jun 2022

Are Changes on the Way for Bankruptcy and Student Loans?

Posted by / in Blog, Weekly Posts /

Are Changes on the Way for Bankruptcy and Student Loans?

There’s one big change Joe Biden can make (without Congress) so people who can’t afford to pay their student loans can clear them in bankruptcy.

During his presidential campaign, Joe Biden promised to help people who can’t pay their student loans.  So far, he’s helped people who got sucked in by scam colleges.  He provided closed school student loan forgiveness for people who went to ITT and Corinthian/Everest College.  Plus, for almost everybody, he suspended student loan payments because of the pandemic.

There’s talk now of $10,000 forgiveness across the board.  But that talk of $10,000 forgiveness across the board gets a lot of criticism.  It helps some people who don’t need help.  And does very little for people who really are overwhelmed.

There’s more that can be done.  That’s why pressure is building to treat student loan debt in bankruptcy like any other debt:  Ordinary debts debts that you can clear in bankruptcy if you can meet the bankruptcy requirements showing that you can’t pay.

“Undue Hardship”

student loan with undue hardship

Bankruptcy can discharge your student loans only if you can show undue hardship.

The bankruptcy law now says student loans can be cleared only in cases of “undue hardship.” Over the years the courts have said “undue hardship” basically means paralyzed, never work again.  Under that definition, according to the chief judge of the bankruptcy court here in eastern Virginia, you just can’t win in court on “undue hardship.” The judge said “that door is nailed shut.”

Calls for Change in the Undue Hardship Law

Recently, several news outlets have called for changes to the undue hardship rule.  Here’s a recent article in the Wall Street Journal.  And one from Politico.  And another in Bloomberg. 

But There’s No Chance Congress Will Act

Personally, I think there is zero chance that Congress will change the undue hardship rule, although there have been some steps in that direction.  Sen. Dick Durbin (D-IL) is a long-time supporter for better bankruptcy laws.  March last year he was able to get Sen. John Cornyn (R-TX) to join him on introducing a bill to change the undue hardship rule for people who had been struggling with student loans for more than ten years.

But I don’t think it will go anywhere. Why?  In our current political environment, support for bi-partisan cooperation often leads to defeat in the next primary.

On Bankruptcy and Student Loans, Biden Can Do One Thing

Government lawyers, the U.S. Department of Justice, go into bankruptcy court and fight against consumers trying to prove “undue hardship.”  Those government lawyers argue that the consumer should work longer hours or get their children to work to help pay for the loans.

Biden can call off those government lawyers. If the consumer, without government opposition, can persuade the judge–and that may still be tough–the consumer should win. And if the consumer wins at trial, the government should not appeal.

Good News  November 8 2022

President Biden did exactly what we hoped for on November 8, 2022.

Here’s more info from the New York Times.

 

Let me tell you about Sandy Chamberlain

Sandy, not her real name, is a divorced mom with three kids, 17, 8 and 7. Her annual is $68,952 and she gets $900 a month in child support. (That will drop when the teen reaches her 18th birthday.) That seems like a lot of money but it doesn’t go far around here.

As a family of 4, she has automatic income eligibility to file Chapter 7 if she’s making less than $121,793. She’s under that eligibility cutoff by $42,000 a year!  And her student loans? Sandy has $70,757 in student loans.  Her payment, if ever hopes to pay it off, is supposed to be be $554.00 a month. Even though she’s $3500 a month below the average for a family of four in Virginia, and it’s considered no “undue hardship” to make her pay $554 a month on the student loan.

Never gonna happen.  That $554 almost makes her car loan payment and she needs that car a lot more.  (Besides transportation for herself and the kids, she does Instacart driving in months where the food and money run out before the next paycheck.) The government will never get the $70,757 student loan paid. And $10,000 student loan forgiveness won’t really change that.

Rents around here are shooting up even faster than housing prices.  If Sandy’s bankruptcy could clear her student loans, she’d be eligible to buy a house in a couple years.  But with $70,000 in student loans just sitting there unpaid, she can’t ever get a mortgage. (And that blot on her credit means she pays higher interest on her car loans, too.) 

Can Sandy Come Back?

Sandy’s bankruptcy will be over this July. And we can’t do anything about her student loans now, because we can’t win when the government lawyers come in to fight against us. But if President Biden changes the government policy later this year–or next year–Sandy will be able to come back to court. Under the law, Sandy is allowed to reopen her bankruptcy case for “further relief.” 

A chance to show hardship would be a relief.

The Whole Idea of Bankruptcy

The whole idea of bankruptcy is that the country is better off if people who cannot pay their debts are able to start over. That should apply to student loans, too.  For people whose degree has made them good money, bankruptcy wouldn’t apply.  For people who just can’t pay, those people, and their kids, and the country are all better off if the debts are cleared.

We’re hoping Joe Biden agrees and will help Sandy out.  

 

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14

May 2022

Bankruptcy and Depression

Posted by / in Weekly Posts /

Bankruptcy and Depression: No, I’m Not a Doctor

This post is about bankruptcy and depression. No, I’m not a doctor. (Actually my law school degree says I’m a JD– a juris doctor). But I see depressed people a lot. And because I see it a lot, I’ve read up on it.

The VA says that depression can be caused by trauma. As a bankruptcy lawyer, I see a lot of people who’ve been knocked down by physical or emotional trauma.

Next, according to this NIH article, many physical illnesses also cause depression. Academic research–the first and most famous by Professor, now Senator, Elizabeth Warren–shows that most bankruptcies follow medical problems.

Finally, this blog from the Harvard Medical School says depression can be a side effect of many medications.

I talked to someone this week–I’ll call her Farah–who had all three of those factors. And she was obviously, seriously depressed.

We Talk Openly About Depression

If one of my clients looks depressed, I bring it up. When I talk openly about depression, most people who look depressed tell me that they already know they are. Most of those, like Farah, have already sought treatment. If they haven’t, I encourage them to get help, saying something like this: “Depression is tied to chemical changes in your brain.  You can’t just pull up your socks and get over those chemical changes.”

Bringing up depression directly is what the Cleveland Clinic calls “assertive communication.” The Cleveland Clinic says one way people can help their depressed friends is to talk openly about what we see.

depression

I see depressed people a lot. If one of my clients looks depressed, I bring it up.

After I bring it up, I try to coax people to taking a look at their depressed self; and encourage them to remember their “real self.” So, I don’t tell people to shake off the depression. (Telling depressed people to get over it is NOT recommended.) Instead, I tell them to recognize how seriously it is affecting them. I try to show what the Cleveland Clinic article calls “empathy.”

Depression is often combined with guilt. When that feeling of guilt to comes up, I bring up Donald Trump. Look, I tell people. Donald Trump used “the chapter laws” (he meant Chapter 11 but didn’t say that) because he lost money in the casino business.

A few years ago I calculated that in his fourth Chapter 11, Donald Trump discharged more debt than all fifteen thousand people I’ve helped put together.

If Trump, who claims to be worth ten billion dollars, can take advantage of the “chapter laws,” you can too.

The Purpose of Bankruptcy is to Help You

Ninety years ago, the Supreme Court, in the famous case of Local Loan v Hunt, said that giving people in bankruptcy a fresh start in life is a “public…interest.” In other words, the country is better off when people are able to get back on their feet, financially.

That’s the point of the bankruptcy laws. The country is better off when people like you can get back on your feet.  (The credit card companies will do fine either way.)

Bankruptcy and Depression

I love being a bankruptcy lawyer because I can help almost everyone I talk to.  Of life’s problems–and people with depression are usually battling many of life’s problems–too much debt is usually the easiest one to fix.

PS For More Information on Depression

Here’s an article I think is helpful from Psychology Today.

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