Will Bankruptcy Get Rid Of My Student Loans?

Bankruptcy Courts Make It Tough To Rid Student Loans

Bankruptcy courts around the country toughened up on helping students discharge student loans beginning in 2006.  Many still do not realize the scope and extent of the lifelong financial burden they saddle themselves with when taking out student loans. Student loans are preventing thousands of college graduates from purchasing their first homes.  After all, living expenses are higher and salary levels are lower than anticipated, making student loan debt repayment difficult if not impossible.

If this is you, you might be wondering if you can turn to bankruptcy for relief and a fresh start. The chances of bankruptcy being the solution is slim.  That is because not all debt is not treated equally in bankruptcy. While bankruptcy is great for getting rid of medical bills and credit card bills it is terrible for getting rid of student loan debt.  Most chapter 7 and chapter 13 debtors accept that this debt will remain after filing for bankruptcy.

While Tough, It Is Still Possible Rid Student Loan Debt  

Bankruptcy courts will not discharge student loans except in one narrow circumstance. You have to show undue hardship.  This is a very tough standard to meet.  Some bankruptcy courts require showing not being able to maintain a minimal standard of living, with no hope of a positive change in financial circumstances for some time.  The bankruptcy judge will also look to see whether there was a good faith effort to repay student loans in the past.  

In short, this is what the bankruptcy court is looking for when determining whether is will discharge a student loan from a debtor:

• PRESENT INABILITY TO PAY

What kind of lifestyle is the debtor living?  A bankruptcy court will want to see that after living a frugal life, i.e. paying for apartment rent, food and other necessaries, a debtor does not have any money left over to pay his Lenders. 

• PERSISTENCE OF FINANCIAL CIRCUMSTANCES DURING THE REPAYMENT PERIOD

A bankruptcy court not only requires a present inability to pay, but also requires a prediction about future ability to pay. Factors to consider include a debtor's mental and physical health, dependent's needs, age and other conditions affecting earning capacity. Also considered are prospects for income in the debtor's profession. One bankruptcy court noted that the "most important factor" to satisfy this element is that the debtor's circumstances must "be beyond the debtor's control, not borne of free choice."

• GOOD FAITH EFFORT TO REPAY 

Finally, bankruptcy courts will analyze whether the debtor had made a good faith effort to repay the loans. One court found that even though a mother made over $18,000 in payments, the debtor failed to show good faith by only making one payments and not applying a tax refund he had received.  

In denying the debtor's attempt to discharge the student loans, the bankruptcy court wrote that Debtor and the Lenders "will have to live, uneasily it seems, with the consequences of the bargains they improvidently struck at the beginning of their relationship."


Ouch! present day students need to take heed and understand that today's student loans will have consequences that can effect their financial situations throughout their life.

Southeastern Seminary at Flickr

What Happens at a Chapter 7 Meeting of Creditors?

After filing a chapter 7 bankruptcy, you will be required to attend "the meeting of creditors".  The meeting takes place at court around 45 days after you file bankruptcy. If you have to attend the hearing.  If you do not attend, the trustee, who runs the meeting will likely file a motion asking the court to dismiss your case.   

The meeting is referred to as the "meeting of creditors" because creditors are notified that they may attend and question you about your assets and any other matter relevant to the administration of the case. The good news is that creditors rarely attend the meeting.  On the rare occasions when they do, they are usually trying to locate secured property.  Commonly I see jewelry shops shops asking for the location and return of jewelry where the debtor defaulted on the loan.  Other creditors may ask questions to see whether a debtor should be in a chapter 7 when they can afford to pay back their creditors.  Again, it is rare that a creditor shows up to ask questions.  

The meeting usually lasts only a few minutes and may be continued if the trustee is not satisfied with the information provided by the debtor. Often meetings are continued when the debtor fails to provide acceptable identification and proof of Social Security number. Also, many debtors fail to send the trustee tax returns and pay stubs 7 days before the hearing, per California Eastern District Bankruptcy Court rules.  In short, make sure you are prepared for the meeting.  If you have hired an attorney, the attorney will make sure to send the documents to the trustee and remind you to bring your driver's license and social security card to the meeting.  

If you fail to provide the information requested at the meeting, the trustee will likely set another date for you to return to provide the information.  Multiple instances of non-compliance will likely lead to the trustee requesting that the bankruptcy case be dismissed or that the debtor be ordered by the court to cooperate or be held in contempt of court for willful failure to cooperate. 

The information enables the trustee to understand your financial circumstances for filing bankruptcy and speeds up the questioning process. The trustee will ask questions to ensure that your financial information is correct, that you do not have assets that can be sold with proceeds going to creditors and to make sure you understands the positive and negative aspects of filing for bankruptcy. 

Photo Credit: IAEA Imagebank at Flickr

When Will Creditors Stop Harassing Me After I File Bankruptcy?

You probably do not even bother answering the phone because you know it is a creditor calling.  It would be nice to have some peace, right?

Creditors will stop calling you immediately after you hire a law firm to file your bankruptcy case. This is even before your bankruptcy case is filed with the bankruptcy court!  You tell your creditors that you hired a lawyer and that all contact must go to that attorney.  They have to follow your instructions.  Under the Fair Debt Collection Practices Act, once a creditor is made aware that you are filing for bankruptcy or that you have representation to file bankruptcy, they are prohibited from contacting you and they must go through your attorney.

Most bankruptcy attorneys can be retained for a small down payment toward your bankruptcy fee. Many debtors take several months of saving money to afford a lawyer to file their bankruptcy case. Those months of saving are done without the hassle of creditors calling all the time.

Photo credit: Atilla KeFeli at Flickr

How Zillow and Trulia Can Ruin Your Bankruptcy

Bankruptcy attorneys are hired to navigate debtors through the murky waters of the bankruptcy court. One concern for a debtor is when they own a home that is worth more than what is owed to a lender. Some debtors unwarily rely sites like Zillow or Trulia to determine their property values.  Zillow and trulia are too unreliable.  As a result, debtors filing bankruptcy can ruin their bankruptcy because their property values are higher than what Zillow or Trulia believes.

How You Can Keep Your Home In Bankruptcy: Exemptions for Residence

Under current bankruptcy rules, debtors are allowed to keep up a certain amount of home equity.  However, this amount of equity should not exceed your jurisdication's limit.  In California, bankruptcy courts allow debtors to keep between $75,000 and $150,000 of home equity.

For example, if you own a home that is worth $100,000, and you owe a lender $75,000, you have $25,000 in home equity.  In California, bankruptcy courts allow you to exempt all the equity in the home from the creditors.  However, by choosing to exempt your home equity, you reduce the amount of money that you can exempt other items, such as car equity and cash savings accounts.  Sometimes by choosing to save the equity in a home, a debtor will have to let the bankruptcy court take other personal property.

Let us look at another example.  You own a home that is worth $100,000.  You owe $99,000 to a lender.  Thus, you have $1,000 in equity.  Most California bankruptcy attorneys will choose not to use house exemption to protect this equity so that they can protect more equity in other property, such as car equity and cash savings accounts.  Under this scenario, the $1000 of equity will be protected under the "wild card" exemption.

Can You Trust Zillow or Trulia?

Therefore, it is important to have accurate house valuation.  What is the best way to determine house value?  Hire an appraiser.  Unfortunately, an appraisal will cost $350.  Another reliable source would be to have a competent Realtor tour your house and compare your house to homes that have sold in your neighborhood recently.  While less reliable than an appraisal report, a Realtor report should be pretty accurate a fraction of the price of an appraisal.

How about Zillow?  Or Trulia?  Why not just look at home values through these symstems because they are free?  Bankruptcy courts have held time after time that Zillow is not credible evidence of value.  (In re Phillips, 491 BR 255, 260, n.7 (Bankr. D. Nev. 2014).)

Debtors relying on Zillow are often surprised when the trustee tells them that their homes are worth more than what Zillow says.  Typically, debtors can recover from this surprise by changing their exemptions so that they choose the house exemption.  However, often that leads to other personal property as not being exempt.  The trustee is allowed to sell those items for the benefit of the creditors.

Will I Have To Go To Bankruptcy Court After I File Chapter 7 or Chapter 13?

After filing bankruptcy, you will be required to go to bankruptcy court after filing a chapter 7 or chapter bankruptcy.  All debtors must appear at the meeting of creditors.  Some will need to appear to reaffirm car debt.      

1. Bankruptcy Court's Meeting of Creditors

When filing a personal bankruptcy under a chapter 7 or chapter 13, you will be obligated to attend the "meeting of creditors."  A "meeting of creditors" is not in front of a judge. --That's good news!-- Instead, you are examined by a trustee.  For meetings held at the Fresno Federal Courthouse, there are 5 different trustees that run the meetings.  These trustees have legal or accounting backgrounds.  


Do you want to know where Fresno's bankruptcy court is located and details of what happens at a meeting of creditors?  Here is a link to one of my more popular articles: 

What to Expect At Meeting of Creditors at Fresno's Bankruptcy Court

Usually the creditors meeting takes place between 20 and 40 days after filing chapter 7.  Chapter 13 meeting of creditors occurs a few weeks later.  

The main goal of the meeting of creditors is for the trustee to ask questions of the debtor related to their financial condition.  They want to see whether the debtor has any non-exempt assets that can be sold and paid to creditors. They also want to ensure the debtor is being honest about their financial situation.  The meeting is set with other debtors.  On average, the meeting lasts about 5 minutes.  Some meetings, however, can last longer if there are complicated issues involved.  Meetings can last longer because the debtor is represented by an unprepared attorney, or if the debtor is not represented by an attorney at all. 

The meeting permits the trustee to review the debtor's petition and schedules with the debtor face-to-face. The debtor is required to answer questions under penalty of perjury.   

2. Reaffirmation Hearing

Do you own a car with a loan?  If so, your car loan is secured to the car, which means the creditor can repossess the car if you breach your contract.  Most car creditors have the right to repossess the car, even though the debt owed to the car is discharged. 

If you wish to keep your car, you will need to decide whether to "reaffirm" the debt. A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. The agreement must generally be filed within sixty (60) days after the first date set for the meeting of creditors, but before the discharge is entered. You do not have to reaffirm a debt.  This is a voluntary agreement.  

If you decide to reaffirm your secured property, like your car, the protections of the automatic stay are terminated.   Since a reaffirmation agreement takes away some of the effectiveness of your discharge, legal counsel is advisable before agreeing to a reaffirmation. 

If you are not represented by an attorney, you and the creditor will file an application for approval of the agreement, along with a request for hearing. An order approving the agreement should be brought to the hearing. You must appear in person at the hearing. The judge will ask you questions to determine whether the reaffirmation agreement imposes an undue burden on you or your family and whether it is in your best interests. The judge will only reaffirm those secured debts that you can afford and is important to you to make a living. The judges in Fresno do not reaffirm home loans.  

Photo: Phil Roeder at Flickr

More Families Soon To Qualify For Chapter 7 Bankruptcy

Photo by: torbakhopper at Flickr

Do you need to file a chapter 7 bankruptcy? Do you make too much money? Beginning November, rule changes will allow a few more higher income households to file Chapter 7 bankruptcy in California.

Too Rich To File Chapter 7?

One hurdle to a bankruptcy discharge in a Chapter 7 is the "means test".  This test guards against bankruptcy abuse--those debtors that can afford to pay back their creditors.  The "means test" analyzes your household income and expenses.  The goal is to determine whether you can pay back your creditors.  "Passing" means it is presumed you cannot.  "Flunking" means you may be able and may need to file bankruptcy under another chapter, like a Chapter 13 bankruptcy.     

Step One: How Much Do You Make?

Below is the newest median yearly income for a households in California, effective November 1, 2014:   

If your single and your gross income is less than $49,185, than you pass.  (See the graph above.)  If you live with a spouse, you and your spouses combined grossly income must be below $63,745.  And so on...

If household income, compared to family size, exceeds the numbers permitted in the graph, further "testing" is required.  You will need to deduct permitted household expenses.

Step Two: Analyze Monthly Expenses

The amount a household earns is just one factor.  If your family income exceeds the permitted median income listed above, you may still be able to pass the means test.  This part of the means test is too fluid and therefore too complicated to attempt to explain it in a blog.  You will want a bankruptcy attorney take over at this point.  However, here is a quote from the Department of Justice about analyzing household expenses inside the "means test":

National Standards for food, clothing and other items apply nationwide. Taxpayers are allowed the total National Standards amount for their family size, without questioning the amount actually spent.

National Standards have also been established for minimum allowances for out-of-pocket health care expenses. Taxpayers and their dependents are allowed the standard amount on a per person basis, without questioning the amount actually spent. 

Maximum allowances for housing and utilities and transportation, known as the Local Standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less.

Generally, the total number of persons allowed for necessary living expenses should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.

If the IRS determines that the facts and circumstances of a taxpayer’s situation indicate that using the standards is inadequate to provide for basic living expenses, we may allow for actual expenses. However, taxpayers must provide documentation that supports a determination that using national and local expense standards leaves them an inadequate means of providing for basic living expenses.

Copied from Department of Justice, Trustee, website on October 17, 2014

Because the analysis is so fluid, you will want to analyze your monthly expenses with a bankruptcy attorney.  As a starting point, here is the present national standards for food clothing and other items:  

Copied from Department of Justice, Trustee, website on October 17, 2014

Sometimes, even when you "flunk" the means test, the court could consider your specific circumstances that will allow you to file chapter 7 bankruptcy.  A common one relates to permitting additional expenses that relate to treating a medical condition.  Bottom line, consult with an expert to effectively navigate the "means test". 

Bankruptcy Filings Continue to Drop!

Last week I attended a meeting put on California's Eastern District Court.  This district includes the Central Valley from Bakersfield through Sacramento.

One of the round table discussions was the drop in bankruptcy filings.  Fewer and fewer individuals and businesses are turning to bankruptcy.  The peak of bankruptcy filing during the Great Recession was in 2011.  Since then, fewer and fewer debtors are filing bankruptcy.

One attorney joked that if bankruptcy filings continue at the present rate of decline, the last bankruptcy case to be filed in California's Eastern District would be in December of 2016.  Of course, the present rate of decline in bankruptcy petitions won't keep at this level, but it is illustrative of how many people had to file bankruptcy in the Great Recession.

The trend is not just in California.  Nationwide, bankruptcy filings are down.  Here is an article from the American Bankruptcy Institute:

Bankruptcy filings register largest percentage drop in 2014


Photo Credit: Francesca Gallo at Flickr

Mistakes to Avoid When Contemplating Bankruptcy

Here is some useful tips for potential people considering filing bankruptcy. The list is not exhaustive. It makes sense to speak to a bankruptcy attorney as soon as you think that bankruptcy might be an option. In California's Central Valley (Fresno, Madera, and Tulare County) bankruptcy consultations can be obtained without paying a fee to an attorney.

Don't Do These Things Before/While Filing for Bankruptcy:

• Don't re-pay money to family for money that you borrowed from them.  The bankruptcy court can take these preference payments back up to one year later if you file bankruptcy.

• Don't take use credit cards 90 days before bankruptcy.  Don't take cash advances or make balance transfers either. You may have to repay purchase, cash advances and balance transfers done within 90 days of filing your bankruptcy.

• Don't file bankruptcy without talking to a bankruptcy attorney if you are about to receive a large tax refund.  You might be at risk of surrendering the tax refund to the Court.  See my article on this topic: Beware of Losing Tax Refund.

• Don't take out other new debt you will not be able to repay.

• Don't file when you may receive an inheritance within 6 months of filing bankruptcy.  You could lose it.

• Don't give valuable property away.  The Court will automatically presume that you are fraudulently hiding assets, even if your not.   

• Don't cash our retirement to repay debts without the advice of a bankruptcy attorney.  The assets inside retirement accounts are exempt accounts.  In other words they are protected from creditors in bankruptcy.  The policy for protecting qualified retirement accounts is to encourage people to save for retirement and not be broke when Americans are too old, or unable to make a living.   

• Don't take out a 2nd mortgage to pay off credit cards. This usually ends in disaster.  Sometimes bankruptcy is the better solution.  The added mortgage payment may make it too expensive to afford your home.  

Again, this is not an exhaustive list.  This is to encourage those with debt issues not to make bad decisions and to speak to a bankruptcy attorney beforehand.  

Photo Credit:  Danielle Buma at Flickr

Chapter 7 Bankruptcy: What Happens With Car Financing?

When a debtor files Chapter 7 bankruptcy in California, the debtor will likely be requested to reaffirm their car financing debt.  Most consumer credit agreements for cars include a provision that defines filing bankruptcy as an act of default.  If the debtor is current on payments, and the only default is filing bankruptcy, this is known as “ipso facto” default.  Unlike some states, California does not have a law that prohibits a creditor from enforcing ipso facto default in a consumer credit agreement.  So a creditor, like Ford Motor Company, can enforce an ipso facto default in California.  In other words, the creditor can repo the car if the debtor files a chapter 7 bankruptcy and does not agree to complete and sign a Reaffirmation Agreement.

If the debtor signs a reaffirmation agreement that is approved by the bankruptcy court, the "ipso facto" default dissolves.  To execute a Reaffirmation Agreement in Chapter 7 means the debtor is agreeing that he/she will owe an outstanding balance on the car.  The order that discharges the debtor's other debts will not apply to the reaffirmed car loan debt.

A debtor does not have to reaffirm the debt.  Sometimes its better to not reaffirm debt, especially when the financing terms are very expensive compared to the present value of the car.  For instance, if a car is financed for $15,000 at 5% interest with 4 years of payments remaining, and the car is only worth $8,000, it would be in the debtor's interest to not reaffirm the debt.

If the debtor refuses to timely enter into a reaffirmation agreement, then the automatic stay terminates on day 31, as per 362(h).  That means that the creditor would have recourse to repo the car anytime thereafter.  

Sometimes, the bankruptcy Judges in Fresno will not let a debtor reaffirm a car loan debt.   A judge can find undue hardship to the debtor if the debtor would take on the old car loan debt. If this happens, the car could be repo'd by the car lender, as explained above.  Just because the lender has the legal right to repo a car, does not mean that it will.  Many times a car lender will hold off on exercising this right so long as the debtor is current with payments.  The choice of whether a car gets repo'd in this scenario, is entirely up to the lender.  The debtor has no legal right to prevent a repo.


Picture by Moyan Brenn on Flickr

Should You File Bankruptcy? Three Steps To Consider

There is a right way and a wrong way to deal with debt.  The right way requires courage to take action.  This article provides an effective plan to determine whether filing bankruptcy is the right answer.   
  

1. How Many Months to Become Debt Free?

The answer to this question is essential and requires work.  We need to know household income and household expenses.  The left over money is used to pay credit card and medical bills.  Bankruptcy may be the solution if it will take too many months to become debt free.     

To help figure out household budget, here is a link to free budget forms from Dave Ramsey.  I am a huge fan of Dave Ramsey.  He is a great source to help get out of financial trouble.  He was forced to file bankruptcy and has since made a good living helping others deal with debt.  I offer his financial management course to all my bankruptcy clients.  

Now, we need to add up credit card and medical bills (unsecured debt).  Having trouble figuring out these types of bills?  These types of bills will be listed in a credit report.  Get a free credit report from www.annualcreditreport.com.  Ignore the offers to pay money for your credit score.   

Finally, we have the numbers to determine how long it will take to pay off unsecured debt.  Divide the total of all unsecured debt by the money left over from the monthly budget.  The answer represents the number of months it will take to pay off bills. Will it take more than three years to become debt free?  Tinker with the expenses that can be changed to see if you can become debt in a reasonable amount of time.   

2. Am I Being Forced to Take Action?

Are bills forcing you to take some action that will require an extreme financial consequence? Being sued by a creditor like Midland Funding?  Are your wages being garnished by a creditor?  Are you considering withdrawing money from a 401k to pay creditors? 

3.  Consult A Bankruptcy Attorney!

If it is going to take too long to become debt free, or if you are being forced to take some action that will have a financial consequence, go talk to a professional.  

I, like most Fresno personal bankruptcy attorneys, do not charge for the first consultation.  If you contact an attorney that wants to charge right away, try someone else.  Remember, your chief goal is to determine whether you should file bankruptcy.  It's also important to feel comfortable with the attorney.  Trust your instincts.  There are a lot of attorneys that file Chapter 7 bankruptcies in Central California. 

The first meeting can last anywhere from 30 minutes to 90 minutes.  Make sure you are meeting with the attorney, and not a staff member.  The attorney's goal should be to explain the bankruptcy process and determine whether bankruptcy is the best solution.  If the attorney pushes you to filing bankruptcy without evaluating your income and bills you are probably meeting the attorney.  If the attorney wants to pass you off onto one of his/her staff members, you might want to consider another office.     

You should have all your questions answered.  The attorney should have a broad understanding your personal finances.  These topics include your assets, income, and expenses.  At the end, you should feel more comfortable deciding whether you want to file bankruptcy.  You should be quoted a price to file bankruptcy.  I typically charge $1200.  I often quote prices that are lower than $1200.  Sometimes higher if your case requires more like you operate a business, have a lot of creditors, or if you make car payments.  Each case is unique.  The Eastern District of California Bankruptcy Court charges $335.  There are two online bankruptcy classes can cost as low as $35. 

It is helpful to bring copies of the following documents to your meeting: 

1.  Driver License

2.  Social Security Card 

3.  Last two years of filed tax returns

4. Last six months income stubs.  (Pay stubs, unemployment, disability, etc.)  

5.  Lawsuits, garnishments, foreclosures, abstract of judgments or tax liens.

6. Retirement statements (Your most recent 401k, PERS, STRS, and/or pension statements

7. Title certificates to all cars, trailers, Boats, etc.  

8. Most recent invoice statements to vehicles and real property

9. Life insurance policies.

10. Credit report from www.annualcreditreport.com (the free report)

11. If you are required to pay child support or alimony, than provide Marriage Agreement and court order.

12.  License of professionals, e.g. sales agent, truck driver, attorney.   

Photo credit: Marco Bellucci: Flickr

Debtor's Beware of Inherited Retirement Funds

Grandma passes away and you inherit her retirement funds.  If forced to file bankruptcy, will you be able to save the inheritance from the creditors?  

The bankruptcy court allows personal debtors in a Chapter 7 case to claim as exempt certain personal property.  Common exemptions are household items and equity in homes and cars.  Included as exempt from creditors are personal retirement accounts.  

Recently the U.S. Supreme court was asked whether a debtor can claim as exempt from creditors an inherited retirement account.  The answer was "no" in most cases.  Spouses who inherit a retirement account from their spouse are allowed to "rollover" the account into the living spouse's name.  Under this circumstance, the surviving spouse may claim the monies exempt.  Not exempt are inheritances outside the course of marriage, for example, parent to child.  

Here are some more details from the case: 

In 2001, daughter inherited $450,000 from an an IRA from her mother’s estate.  In 2010 the daughter and her husband filed chapter 7 bankruptcy.  They claimed the inheritance as exempt retirement funds.  The Chapter 7 trustee and unsecured creditors objected to the claimed exemption on the ground that the funds in the inherited IRA were not “retirement funds” within the meaning of the statute.

  

The Supreme Court held that the funds in an inherited IRA are not set aside for the debtor's retirement and thus are not "retirement funds" under the retirement exemption.  The Court found that the daughter was prohibited from investing additional money in the account.  Also, she was not required to take minimum annual distributions every year, but could withdraw the entire balance of the account at any time and for any reason without penalty.  As such, the Supreme Court held the account did not have the characteristics of a typical retirement account.  

Photo Credit:

Quinn Dombrowski at Flickr

Chapter 13 Bankruptcy: A Great Tool To Save House From Foreclosure

Central Valley California -- There are primarily two types of personal bankruptcy that you can file under the Code:  Chapter 7 and Chapter 13.  Chapter 7 is a great tool to get rid of credit card debt.  But if you are behind on house payments, Chapter 13 is the best tool to save your house from foreclosure.

Chapter 13 bankruptcy is considered the repayment plan.  The goal is to create a plan that is approved by the bankruptcy court to repay creditors over 36 or 60 months.  

Let's say that you are $10,000 behind on mortgage payments.  Your lender sends out a foreclosure notice saying that you have 90 days to cure the default.  In other words, you have to pay the lender $10,000 in 90 days.  If you do not, then the lender can foreclose on your ownership interest in the house.

Chapter 13 bankruptcy protects homeowners from the 90 day pay, or be foreclosed scenario.  By filing Chapter 13, you can propose a plan to the court that extends the 3 months foreclosure to 60 months.  It works out that instead of paying an additional $3,333.33 to catch up on payments, you can lengthen payments so that you only have to pay $166.66 dollars per month.

You will have to also make your regular monthly mortgage payment.  Also, do not forget about attorney fees and trustee fees for advising, preparing and administering the plan.  Presently, trustee's command a 6% commission and attorney fees are approximately $4,000.  These expenses are incorporated in the plan payment.  Expect the extra $166.66 plan payment to increase to about $220 per month.    

Chapter 7 bankruptcy will stop a foreclosure sales date, but only temporarily.  Chapter 7 bankruptcy in itself does not create a plan to repay past due mortgage.  A homeowner will be left with hopes of modifications, but this is not guaranteed and can result in the continuation of the foreclosure shortly after filing chapter 7 bankruptcy.

Should I File for Bankruptcy?

Should I File for Bankruptcy?

You lost your job and were living on credit cards to make ends meet.  You suffer from medical bills.  You are separated/divorced from your spouse.  These are real life issues that have made you wonder whether to file for bankruptcy.  This is a very personal decision.

Considering Bankruptcy Checklist

If several of the following apply in your situation, you might consider bankruptcy:

• Your salary is garnished or your bank account is attached
• Most of your bills are credit card bills, hospital or doctor's bills, etc.
• Your bills is more than you could reasonably pay over three years
• Collection agencies are calling you at home and/or at work
• Your payments are more than 30 days behind 
• You are being sued by creditors
• You owe income taxes that you are currently unable to pay
• You have few assets
• You have little or no savings
• You have had property repossessed (such as a car)
• Your mortgage lender has threatened or started foreclosure proceedings against your home.

Morgan at Flickr

Chapter 7 Bankruptcy: Debtor Beware of Losing Your Tax Refunds!

When filing a chapter 7 bankruptcy, the goal is to allow you to have a "fresh start".  A fresh start means that we, as a society, want you to have a car to get to work.  Keep your tools so that you can continue to work in your trade.  Keep clothes, household goods, and other items so that you are not from starting from scratch.

A "fresh start" is essentially artful terminology that guides you as to whether a you will be allowed to keep possessions in a bankruptcy.  One asset that is the subject of many trustees is the tax refund.  You might be one of those individuals that gets a large tax refund.  Trustees in a chapter 7 cases, the administrators of the bankruptcy case, look for large tax refunds that can take and distribute to your creditors.

In a chapter 7 bankruptcy, there are two tracks of exemptions to protect your assets from being sold to creditors.  One track is the home equity track.  You can protect from $75,000 to $150,000 of equity in your home.  This is a great exemption that protects a lot of money if you have worked hard to build equity in your home.  If this path is taken, you will likely have to surrender your tax refund if you have not spent your tax refund before you file bankruptcy.  This mainly effects debtors from late in a tax year through May of the following year.  Late in a tax year, you have built up a nice savings with your employer that that a trustee will look at with an envious eye.

If you have not built up equity in your home, you can use the approximate $20,000 "wild card" exemption to protect your tax refund.  $20,000 is not nearly the same protection as the home exemption, but it can come in handy to protect to a $8,000 tax refund that I have seen from some debtors.

Photo from Efile989 at Flickr
    

How Much Debt Before I Should File Bankruptcy?

$5,000?  $50,000?  $500,000?  How much debt do you need to have before it makes sense to file bankruptcy?

There is No Magical Amount!  

There is no particular debt limit that you must have in order to file a Chapter 7 bankruptcy.  It really depends upon what is going on in your life.  Life is not simple.  Some clients find themselves with good income, but are suddenly single parents with little disposable income.  Other clients are living on only social security income and have little debt.

A Little Debt....

I once had a client who have wanted to file a bankruptcy with only $4000 debt. In virtually all situations, this is not enough debt to justify filing bankruptcy.  However, a perfect world storm caused this case to be filed. First, income was almost non-existent.  Usually, this is not a problem once the creditor realizes the issue and will settle the debt for less than what is owed and what the client can afford to pay.  In this case, however, the creditor was stubborn, which made it stupid.  It wanted to be paid 100% and continued to proceed with a lawsuit, hoping to obtain a a judgment and a 25% wage garnishment.    No amount of persuading the creditor to take less worked.

Or, A lot of Debt ....  

I have had other clients who had $400,000 worth of debt and were fighting against filing a Chapter 7 and getting a fresh start.

The Key:  Can You Make A Dent in Your Bills if You Attacked It for 6 Months?

You have to determine whether or not you feel you can either pay your debt back over time or whether or not you need a fresh start to be able to survive.

I like the 6 month rule.  If you attacked your debt for six months, could you leave a dent?  Or, would you hardly leave a dent, instead you are just simply paying minimum payments, primarily paying interest.  If you don’t see your debt going down, then bankruptcy is probably a good solution for you to get out of debt once and for all and get back on your feet.  If, on the other hand, you feel you have the ability to make a significant dent in the debt, I think you should first try this approach.

Photo Credit: Alan Cleaver at Flickr

Ken Jorgensen Update's Bankruptcy Website

I am pleased to announce that I have updated my bankruptcy website!  This website is meant to offer better content to clients and potential clients in a clean and crisp format.  I am very happy that the website is responsive to viewing on mobile devices as well!  Please check it out and let me know what you think!

fresnobankruptcylawgroup


The website was designed by Rod Silver of Artco.

Fresno War Hero Falls Victim to Payday Loan Business Charges 460% APR!

Jason Comely at Flickr

A couple of weeks ago, I heard the saddest story from a 80+ year-old war hero.  He told me that he had survived many attacks from enemy fire, but he fell victim to our local payday loan industry.    

Retired and recently widowed, this war hero was forced to take out a payday loan to help his children's family out.  (Most of his retirement is spent on family.)  Unfortunately, he was not able to repay the loan on time and has losing a battle to late fees and interest rates that are eating away his monthly retirement fund.  He spends nights wondering how he is going to be able to dig himself out this hole.  

Bankruptcy may be a last resort.  

Payday loans advertise themselves are being saviors to community as they can be a short term fix until the next payday; however, I think they are more a cancer on our local economy.  In fact, I think these businesses pray upon the lower economic citizens in the Central Valley.

Fresno's "Check Into Cash" Charges APR of 460%.

I went online to check out a few Payday Loan companies in Fresno.  I was shocked!  Fresno's "Check Into Cash" payday loan store charges their customers an interest rate of 460%, per year.  They proudly advertise it.  Here is an image from their website: 




















The sad fact is that this not uncommon in the industry.  Client borrows $255, and then repays $300 14 days later.  That is 460%.  

You might be thinking that I am making a big deal over $45.  However, as a bankruptcy attorney, I have listened to the story dozens of times:  Client goes and gets $255.  Repays $300.  Has to go back again.  Then again.  Sooner or later another "emergency" happens and there is no $300 to repay.  The client then goes to a different check cashing store to get $255 to pay to the first store.  Soon, the client is juggling multiple stores.  No wonder that filing a Chapter 7 Bankruptcy becomes the only way out.     But this is not how they advertise it   Fresno 

Cash Advances Promises They "Might" be the Answer to Financial Woes:

Cash advances or payday advances, are ideal for anyone who is in an emergency situation and needs money now. Whether you need cash to pay a utility bill, the landlord, get your car repaired, or any other unexpected expense, payday loans might be the answer and Check Into Cash is right around the corner. We have a Fresno payday loan center in Midtown Plaza ready to help you get your money today.

How does this happen?  Why does it happen so often?  Certainly it is not because of a lack of businesses that offer the service.  I went onto a search engine and typed "payday loans Fresno".  There were pages of advertisement.  I looked at a map of Fresno, and the map had more than 70 businesses listed as payday loan centers.  70!  Shaw Avenue is by the far the epicenter of check cashing stores.  North of Alluvial Avenue had some payday loan businesses, but they were few in number.  There were a good number of businesses located south of Shaw Avenue, but I was surprised that Shaw Avenue had the densest supply of businesses.  

It is Easy To Get a Payday Loan!

Nor is it difficult to get money.  I investigated a little further by researching a company online, Fresno Check Into Cash Fresno Payday Loans.  Here is how they describe how you can get a loan:  

You just have to write a check and leave it with the store.  This seems too simple.  I would imagine that you would have to show a driver's license and some pay stubs to show that you are gainfully employed.  But, even if they required the additional amount, the process is still easy.

The funny thing is that if people were able to save $255 and put it into a savings account themselves, they would not be abused by such high fees.  Its a shame that Fresno seems to have a city full of people who cannot save a little a  money, but are able to keep 70+ businesses flush with cash.

Attorney Ken Jorgensen is located in Clovis, California.  He handles personal, property and business disputes, including bankruptcy and eviction cases in California.  You can find out more about Ken on Facebook, or at his websites, www.fresnolawgroup.com and www.fresnobankruptcylawgroup.com.  He can be reached at jorgensenlaw@gmail.com or by telephone at 1-559-324-1882.

Student Loans: Federal Legislation is Proposed to Lower Outstanding Interest Rates to 3.86%

Right now, filing bankruptcy does little to alleviate the burden of Student Loan debt, aside for temporarily deferring monthly payment requirements.  Student loan debt is preventing young people from buying homes because they cannot afford to make student loan payments and  mortgage payments.

Here is some potential relief to those who now owe student loans with a high rate of interest:

U.S. Senator Dick Durbin (D-IL) joined U.S. Senators Elizabeth Warren (D-MA) and U.S. Senator Jack Reed (D-RI) today introducing the Bank on Students Emergency Loan Refinancing Act, which would allow those with outstanding student loan debt to refinance at the lower interest rates currently offered to new borrowers. Durbin, Warren, and Reed have been working together on efforts to build broad support in the Senate for legislative action to reduce new student loan debt and make it easier for millions of working families to manage the student loan debt they already have.

Many borrowers with outstanding student loans have interest rates of nearly 7 percent or higher for under U.S. Senator Dick Durbin (D-IL) joined U.S. Senators Elizabeth Warren (D-MA) and U.S. Senator Jack Reed (D-RI) today introducing the Bank on Students Emergency Loan Refinancing Act, which would allow those with outstanding student loan debt to refinance at the lower interest rates currently offered to new borrowers. Durbin, Warren, and Reed have been working together on efforts to build broad support in the Senate for legislative action to reduce new student loan debt and make it easier for millions of working families to manage the student loan debt they already have.

For the rest of the article, please click:

U.S. Senate Press Release

If you are interested in lowering student loan interest rate, please contact your Senator as this looks like a good bill that should become law.

Attorney Ken Jorgensen is located in Clovis, California.  He handles personal, property and business disputes, including bankruptcy and eviction cases in California.  You can find out more about Ken on Facebook, or at his websites, www.fresnolawgroup.com and www.fresnobankruptcylawgroup.com.  He can be reached at jorgensenlaw@gmail.com or by telephone at 1-559-324-1882.

Photo Credit: donkeyhotey at Flickr