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05

Aug 2020

November Elections Might Help Bankruptcy Law and Your Student Loans

Posted by / in General Information About Bankruptcy Law, Weekly Posts / No comments yet

Democratic Platform Promises Good News on Bankruptcy and Student Loans

Are you struggling with student loans you can’t pay? The Democratic Platform promises to help.

The platform of the 2020 Democratic National Convention says this: Democrats will restore the prior standard in bankruptcy law to allow borrowers with student loans to be able to discharge their debts in bankruptcy as a measure of last resort.

What’s that “prior standard?” That probably means a bankruptcy discharge can discharge student loans that have been in payment status for several years. (The required payment status was five years beginning 1976; increased to seven years in 1990.)

And I hope it means that private student loans are just regular debt.  Bankruptcy filed any time should discharge those. (That was the law on private student loans until 2005.)

So, if the Democrats have their way, if you are out of school, with no deferments, for seven years (maybe only five), then you can file bankruptcy to discharge your student loans.

What does this promise of future help mean to you now?

Should I Wait and See Election Results?

Suppose you have a credit card problem right now–and impossible student loans also hanging over you. If you file Chapter 7 bankruptcy today, you can’t file Chapter 7 again for eight years. So if there’s a new law, you’d have a very tough time taking advantage of it.

Can you hold on until after the election? November 3, 2020 is election day this year. That will decide if a Democrat is elected President. It will also decide if Democrats take control of the United States Senate. (It might hinge on a Georgia runoff January 5, 2021.) Democrats likely need control of the Senate to deliver on this student loan promise.

Election day

Election day is November 3, 2020

After the Election, Expect More Delay

The new President and new Congress come into office next January. But I doubt they get started on bankruptcy law and student loans right away. The pandemic and economic crisis will keep them busy. My own guess: I’d expect to see changes in the bankruptcy law affecting student loans taking effect by July 2022. That’s more than a year and a half after the election.

Can’t Wait that Long? Consider Chapter 13

If you can’t handle, or outrun, your debts until summer of 2022, you can protect yourself with a Chapter 13.

A Chapter 13 bankruptcy is a payment plan through the bankruptcy court. You have to pay “all you can afford” for three years–or sometimes five years. “All you can afford” puts you on a tight budget; but not as tight as a garnishment for 25% of your after-tax pay. (If you have a security clearance, filing Chapter 13 can protect your clearance. Going late on your debts can put your clearance in jeopardy.)

Here’s a big advantage of Chapter 13: You can drop out of Chapter 13 at any time. You’d plan to drop out when a new law allows you to discharge your student loans in a Chapter 7. If the law doesn’t change, you’d likely want to see the Chapter 13 through to the end.

Conclusion

Are your credit cards out of control? Are you in danger of getting garnished now? Do you also have a student loan problem?

Maybe filing Chapter 13 now is a good plan. You can set up small payments on the debts now. And be able to take advantage of a new law on student loans when it’s available.

Student loans can keep you in poverty

Now, bankruptcy is almost no help with impossible student loans.

Bankruptcy Law and Student Loans:  When Student Loans Became Special

Student loans now are in a special category that bankruptcy law can hardly touch.

Under the old, 1898 Bankruptcy Act, student loan debt was just another debt. You could clear in in bankruptcy just like credit cards, loans, medical bills. Starting in 1976, clearing student loans got tougher and tougher.

In 1976, a new law said that student loans had to be in repayment status five five years, before they could be discharged.  (Excerpt for undue hardship.) The current bankruptcy code was passed in 1978, kept that five years.  In 1990, it was stretch out to seven years. In 1998, the seven years was gone.  You could only clear student loans based on “undue hardship.” And undue hardship basically means paralyzed, never work again.

In 2005, private student loans received the same special status of government and charitable student loans. That’s where we are today.

During the presidential primary season, Sen. Elizabeth Warren called for the Federal government to just forgive them all. The Democratic platform doesn’t go nearly that far.  Probably a Democratic majority in the Senate won’t do that either.

 

PS Final Draft is Stronger

The final draft of the platform was stronger.  It has me hoping a Democratic majority could make student loans dischargeable in bankruptcy, without the five year, or seven year requirement.

 

PPS  Nothing in the Republican Platform.

The 2020 Republican Platform said nothing about bankruptcy and student loans. Actually, because of the pandemic, they voted to have no platform at all.  

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07

Jul 2020

Get Your Money Out of Wells Fargo

Posted by / in Before Bankruptcy, Blog, Weekly Posts / No comments yet

If you are filing bankruptcy, Get Your Money Out of Wells Fargo.

People filing bankruptcy get kicked when they are down, if they bank  at Wells Fargo.

Wells Fargo sees your bankruptcy on your credit report and they freeze your checking and savings account.  At least they do if you have more than five thousand dollars in their bank.  (They have said in court they only do it if you have more than $5000.00.  But they don’t just freeze the amount over $5000.00–they freeze it all.)

Get your money out of Wells Fargo

Why would a bank beat up their own customers?

Why Does Wells Fargo Beat Up Their Own Customers

So, why would Wells Fargo beat up their own customers like this? They claim they are required to ask the bankruptcy trustee if he wants the money. Although they are the only bank that does this, they have adamantly stuck to this policy for years.

It’s hard to make sense as a business proposition. I personally have probably cost them nearly a thousand customers over the years.  (At one of our national meetings of NACBA, a former NACBA president joked maybe they did it to collect bounced check fees.  That seems a small reward for losing lifetime customers.)

Anyway, get your money out of Wells Fargo.  (A couple weeks after the bankruptcy is filed, you can go back there if you want.)

I first wrote about this problem in 2011.

I first wrote about this Wells Fargo problem in 2011

Since then several lawyers have tried to fight this. As far as I can tell, the bank won every time.  

So, get your money out of Wells Fargo.

 

 

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25

Jun 2020

After bankruptcy….the car still has to pay!

Posted by / in After Bankruptcy, Blog, Chapter 7 Bankruptcy, Weekly Posts / No comments yet

…But the Car Still Has to Pay.

When you file Chapter 7 bankruptcy, that means you don’t have to make the car payments.

But that does not mean you get a free car. You don’t have to make the car payments, but the car still has to pay.

That’s because the car finance company is attached to the car title. Lawyers call that a lien.  If the debt that’s attached to the car isn’t paid, the lien holder will repossess the car.

Don’t Forget to Make the Car Payment

It’s easy after bankruptcy to forget to make the car payment.  If it slips your mind, the car finance company won’t send you a reminder. Why? Because you don’t have to pay. They also won’t send the car a reminder letter. They know the car doesn’t open its mail.

And if you get a week behind, they won’t call and demand payment. Because you don’t have to pay. And they won’t call the car, because the car doesn’t have a phone. Only one thing happens if you forget to pay. You wake up in the morning and the car is gone.

Don't forget to make the car payment. The car still has to pay.

If you forget to make your after bankruptcy car payment, you won’t see the car. the car still has to pay.

Does Paying the Car Help Your Credit Score?

Suppose you forget to pay and the car gets repossessed. The repossession won’t show up on your credit report.  That’s because the bankruptcy discharges the debt from you. But that also means your car payments won’t show up on your credit report if you do pay. You don’t have to pay.

Only one thing happens if you pay. You keep the car.

Only one things happens if you don’t pay. When you wake up in the morning, the car is gone.

You need to make the car payments if you want to keep the car. 

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES