There is good reason to believe that bankruptcy filing continue to trend downwards, but how long will bankruptcy filings continue to trend downwards? Continue reading
There is good reason to believe that bankruptcy filing continue to trend downwards, but how long will bankruptcy filings continue to trend downwards? Continue reading
A means test was instituted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The idea of the bankruptcy changes was to make it harder for serial filers to abuse the system while offering token protection for consumers. Since a student loan is not considered a living expense under the means test, I find the law somewhat obfuscating the intent of protecting consumers. Continue reading
It may seem strange to the debtor who is considering filing for bankruptcy protection to hear that incurring debt can help them into a chapter 7 bankruptcy instead of being forced to file a chapter 13. Continue reading
Do lending institutions understand their risks today? If history has anything to do with it, the answer should be an overwhelming yes. Continue reading
Ever since the founding of this great nation, bankruptcy laws have been forever evolving. If you are filing for bankruptcy protection in 2013 while living in Texas, you will find out that Texas bankruptcy laws have evolved also. Continue reading
There seems to be some confusion about when you can file a Chapter 7 once you have already filed, especially after the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Can you file a Chapter 7 bankruptcy now if you filed before the 2005 law?
A blogger recently posting on a bankruptcy forum website posed this question while giving his personal bankruptcy story. The blogger wrote, “I was wondering. I Filed Chapter 7 on 07/18/2005 and, it was discharged on 11/15/2005. I was in a car crash and now owe more then $75,000 in medical bills. Can I file bankruptcy again in 2012 or do I have to wait until 2013? I am a little lost here. I have the the paper and credit reports ready to go, but I have heard that you now have to wait 8 years. Does this apply to bankruptcy filed under the old bankruptcy?”
The direct answer to the blogger’s question is “no,” the new filing does not apply under the old bankruptcy law. The new bankruptcy filing will apply under the 2005 laws that went into effect October 17, 2005, not the old bankruptcy laws in effect prior to the changes.
That means this blogger has to wait exactly 8 years from his file date in order to file if he is expecting to get a discharge for his medical bills. This is true because he now comes under the new regulation. That means he can file another Chapter 7 bankruptcy as early as 7/18/2013 before he can expect a discharge.
Expectation of getting a discharge is critical in understanding this time line. There is no limit on the number of bankruptcy cases that one may file. In fact, there is no limit in between time frames to file bankruptcy. Nevertheless, if sufficient time between filings does not take place, you may be not be eligible for a discharge.
As an example, if a debtor has assets with enough equity to satisfy his creditors, he may file a Chapter 7 bankruptcy in order to get a trustee to liquidate the asset or assets and pay off his creditors. He will not be expecting a discharge of his debts, but instead, he will be expecting the liquidation of his assets to satisfy his debts.
The advantage of the debtor filing a bankruptcy without being eligible for discharge is that the automatic stay will go into effect and prevent creditor action in collections. The automatic stay can stop lawsuits and any other creditor action, giving the debtor enough time to settle the debts with the sell of the assets.
To take advantage of this last scenario in filing a bankruptcy without the possibility of a discharge has some inherent risks. If you cannot satisfy your debts when the trustee liquidates the assets, you will still be responsible for the debts not yet satisfied. Before you contemplate this type of action, it would be very wise to consult with an experienced bankruptcy attorney.
Can you be too broke to file bankruptcy? This question was raised by an article posted on the CNNMoney website May 7,2012 and titled Too Broke to Go Bankrupt.
The article suggested from recent statistics collected by the National Bureau of Economic Research (NBER) that an estimated number of people between 200,000 and one million debtors would be unable to afford the steep cost of filing bankruptcy this year. NBER reports that a Chapter 7, the simplest and most common bankruptcy filed, will cost more than $1,500 in lawyer and legal fees to file in 2012.
One group of professors from several mid-west universities did research on how bankruptcy filings spiked after people received their tax rebates. They predicted some 200,000 debtors would use their tax refunds to file in 2012. From their research, they concluded that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has added a lot of paperwork to the bankruptcy process driving the costs of bankruptcy higher.
Many predicted the 2005 law would slow bankruptcy filings down and make it harder to file. With the Great Recession, those predictions went out of the window as record numbers of people filed between 2008 and 2011. Since the Great Recession ended, the filings have leveled back off to the numbers just before the recession began.
Still the NBER research suggests that those people filing today are the ones that can afford to. One of the research members was quoted as saying, “it ended up being the relatively better off, or middle-class consumers who can actually afford to file, and the people with lower incomes can’t afford to file.”
Although this writer does not doubt the validity of the facts presented by the NBER research group, and where this writer feels there are completely broke people who feel they cannot afford to file bankruptcy because of the higher fees, my question is, “Can you afford not to file?”
The idea behind filing bankruptcy is either to protect what assets you own from creditors, and/or to make a fresh new financial start free from creditor collection activities. If you have assets worth protecting, you can find a way to get the money to protect them. If you cannot financially withstand the onslaught of collection agents and garnishments from your wages, you cannot afford not to file.
If you are a financial hardship case, here are a few ways you can afford to file bankruptcy:
You can file Pro Se in simple no asset Chapter 7 bankruptcy, saving the cost of a lawyer. That would leave you around $300 in legal fees to pay and those can be waived under certain financial hardship cases.
You can seek Pro Bono services from lawyer groups who give their time to help those with hardships.
If you still have a job, you can stop making payments to your creditors because the debts will be discharged in your bankruptcy. A bankruptcy lawyer can help you to determine which payments you can stop making in order to raise enough to cover the costs of filing, including his fee.
Can you be too broke not to file bankruptcy? Not really. Being broke is when most of you should file. Ask a seasoned bankruptcy attorney if he thinks you are too broke to file.
The Proposed Law Change
The Fairness for Struggling Students Act of 2011 was introduced in the Senate by Senator Richard Durbin (D-Il.) on May 26, 2011. This act, if passed, will “revise federal bankruptcy law with respect to the exemption from the exception to discharge in bankruptcy for certain educational loans if excepting such debt from discharge would impose an undue hardship on the debtor and debtor’s dependents.” As the law now stands, it needs to be revised.
The current status of the act today is that it has been introduced only, but it is a bankruptcy law change worthy of discussion concerning the fairness of how America currently helps millions of its citizens pay for their college education.
The Importance of Education
We have all heard the mantra, “Get a college education if you want to succeed.” From the Baby Boomers on, up to 28% of the work force today have heeded the advice that a college education is the most successful way to succeed. There is an overall direct correlation in America between the amount of education workers have and the amount of financial success they have in life time earnings.
The Problem with Student Loans for College Education
With only 28% of our current work force college educated, obviously college is not for everyone. One of the greatest reasons more people do not pursue college is the rising costs. From 1985 to 2005 the cost of college increased 439% compared to 108% for the consumer price index. That means college costs have increased 4 times faster than the cost of living.
One of the ways Congress has been combating this national problem is through programs guarantying student loans. To help compensate for the overwhelming need for more money, Congress has given lenders representing private student loans the same authority enjoyed by federal student loans.
Private student loans have been the most profitable and fastest growing segment of the student loan industry. Since the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act was passed, private student loans have enjoyed the same status as federal student loans in exemption from bankruptcy, but private student loans have enjoyed a more lenient environment as to interest rates, fees, and collection practices. Many of the private loans have interest and fees comparable to the credit card industry.
With the student private loan cut in the industry coming to over $1 trillion dollars of debt a year, the industry has surpassed the credit card industry for debt. The average student loan is $24,000, but only 56% of the 2010 graduates were able to find employment. This relates to more borrowers of student loans not being able to repay their loans.
The Solution to the Problem is in the Act
Federal student loans are much different than private student loans. With federal loans, there can be repayment assistance, forgiveness, and relief programs. Private student loans are no different than any other kind of private loan.
The Struggling Student’s Act of 2011 proposes to return private student loans to their former status as non-exempt in bankruptcy. Anyone having gone through the tough US Bankruptcy Court System will attest how important fairness is in starting over and how unfair it is that private student lenders enjoy such elevated status.
The American Bankruptcy Institute posted this research analysis on their website on February 29, 2012: “Research by the Federal Reserve indicates that consumer debt is at a record high relative to disposable income. Some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households. A high level of indebtedness among households could lead to increased household delinquencies and bankruptcies, which could threaten the health of lenders if loan losses are greater than anticipated.”
From the analysis, we can conclude that bankruptcy filings are an indicator, like consumer debt, as to whether or not the economy is currently in a healthy state.
Certainly, bankruptcy statistics follow the amount of consumer debt as shown indicated by the chart the Federal Reserve did in their research.
The chart plainly shows what effects the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 had on bankruptcy filings the following year. Bankruptcy filings dramatically dropped from a record 2 million filings in 2005 to almost 6 hundred thousand in 2006.
In 2007, the recession began, and as expected, bankruptcy filings began to increase as the recession continued. Not so strangely, consumer debt payments as a percentage of disposable income began to dramatically decrease.
Historically, consumer debt payments as a percentage of disposable income has followed a line just below bankruptcy filings since 1991, indicating there is a direct relationship between the two. When a deep recession comes along like the one in the 1980’s and the one in 2007, consumer debt seems to zoom upward hitting a peak before the trend of high consumer debt begins to shoot downward. In a deep recession, the consumer debt will hit a high, then drive downward as bankruptcy filings begin to increase.
What is actually occurring is the tightening of available money for credit. When too many bankruptcy filings occur, banks tighten up their credit so less credit is available. Bankruptcy filings take a while to occur after the credit tightens up and is hard to get for the consumer.
There are other factors, like unemployment, that must be figured in determining the overall health of an economy, and the relationship between consumer debt and bankruptcy filings are just one of many. The phenomenon in the statistical blip that took place in 2006 after the change in bankruptcy law indicates how effective the law was on bankruptcy filings, but the recession drove the bankruptcy courts into action as consumer debt payments as a percentage of disposable income continued to rise.
When bankruptcy filings overcame the resistance to file bankruptcy because of the 2005 bankruptcy changes, and the recession swung into full force, as the bankruptcies began to rapidly increase, credit banks tightened up on their loans and disposable income became less. Unemployment caused by the recession also played a large role in the rapid decline of consumer debt.
Today, as new jobs are created and bankruptcy filings decrease, consumer credit is also beginning to loosen up. As a result, you should soon see consumer debt payments as a percentage of disposable income begin to rise again.
American Bankruptcy Institute Quick Poll Results
A Quick Poll by the American Bankruptcy Institute taken on February 1, 20012, revealed that 56% of the respondents believe “Chapter 13 debtors not entitled to a discharge should nonetheless be allowed to strip off a wholly unsecured junior mortgage lien.”
Bankruptcy Code Concerning Stripping Junior Mortgage Liens
The Bankruptcy Code covering the stripping of junior mortgage liens in a Chapter 13 comes under the United States Bankruptcy Code, Title 11, section 506. A debtor filing a Chapter 13 is entitled in most circumstances to strip off a junior mortgage lien as long as the financial interest held by the junior mortgage is less than the financial interest held by the primary holder at the time of filing the Chapter 13. If the value of the property is more than the mortgaged interest of the primary lien holder, the junior mortgage lien cannot be stripped off by a Chapter 13.
A junior mortgage lien cannot be stripped off when filing a Chapter 7 bankruptcy. The debt can be discharged in a Chapter 7, but the lien lives on post bankruptcy.
Challenges Arise in Special Circumstances for Lien Stripping
There have been court precedences concerning special circumstances when stripping junior mortgage liens. Numerous bankruptcy courts have given varied decisions depending on each circumstance in the cases provided.
In Grignon vs Hendrix, debtors who were not eligible to get a discharge under a Chapter 13 because of their violation of U.S. Bankruptcy Code section 1328 (f), serial filing, asked for the stripping of a junior mortgage lien on their home. The bankruptcy court trustee filed a petition with the bankruptcy court to stop the lien strip based on the fact the debtors could not get a discharge from being serial filers. The court recognized the weight of the trustee’s argument, but supported by the case In re Tran, 431 B.R. 230, found there was nothing in the Bankruptcy Code prohibiting a debtor ineligible for discharge from filing a Chapter 13 and enjoying the rights and privileges of a Chapter 13 debtor. That includes the right to strip off a wholly unsecured lien, provided the case is filed in good faith and not solely for the purpose of stripping off the lien at issue. The court concluded the debtor did file in good faith.
In the case In re Winitzky 1-80-bk-10337 , a motion to fully strip an unsecured junior mortgage lien on a residence involved whether the Bankruptcy Code allows Chapter 13 debtors who previously received Chapter 7 discharges within the last four years to fully strip an unsecured consensual lien from the primary residence. The Court concluded the Code does not allow this because a discharge is required to lien strip in a Chapter 13 case.
The Controversy Rages On
You should be able to see from the two different court cases that stripping a junior mortgage lien is not always a cut and dry issue. After the Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005, court decisions have pretty well split on how to handle unsecured junior mortgage liens under the new Bankruptcy Code. Opinions by the bankruptcy professional community, according to the Quick Poll results, show that the professional community is also split on the issue.