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BloomburgBusiness recently published an article that pretty much shows the reality of how much “hardship” is required under the “undue hardship” standard when determining if a debtor can discharge student loans in bankruptcy. The Headline read:

“Courts Rule That Disabled Woman Living Below the Poverty Line Must Repay Student Loans”
“Despite providing that paying back her student debt would leave her unable to afford basic living expenses, two judges ruled a woman could not discharge it in bankruptcy”
According to the article, an unemployed, disabled, 45 year old woman living far below the poverty line was not allowed to cancel more than $37,400.00 student debt in bankruptcy. That statement alone would suggest to most that under the “undue hardship” provision, she should be one of the rare few that are supposed to be allowed to discharge student loans in bankruptcy.

“NOT TO BE!” said the Judge, while acknowledging her income was only $10,000.00 per year derived from Social Security Disability and Public Assistance since 2008. Even though the debt had grown from the original amount of $13,250.00 to an astronomical $37,400.00 due to interest and late charges, the Judge ruled she didn’t satisfy the undue hardship test because one year she had earned an extra thousand dollars and had not paid any of it towards her student loans!!!??!!!

The court noted that she might be eligible for a Federal Loan Student Consolidation Program in which she would not be required to make ANY payment as long as her income didn’t increase! Then, in 25 years the loan would be forgiven!

Let’s see . . . she’s 45 now . . . in 25 years she’ll be 70. Then she’ll get her fresh start! Really? She might even be able by then to retrain and get a job that pays enough for her to live on, AND pay those student loans she’ll need to get the re-training she’ll need to get a job that will pay enough to cover it all! (Maybe you’d like to help her out by guaranteeing her new student loans since her credit will still be in the can and she won’t have enough income to qualify otherwise!)

At a time when student loan debt AND default has reached critical mass, this Judge has raised the bar even higher. Lack of employment opportunities that pay enough to retire the debt that was supposed to provide the means to pay the loans (which now are exceeded only by mortgage debt), has sentenced student loan borrowers (and in many cases their parents and even grandparents) to a life of indentured servitude to the government. (Or to the private investors who buy these loans!) Instead of Guaranteed student loans, we now have GUARANTEED STUDENT LOAN HARDSHIPS!

Need more information? Contact Jon L. Martin – Chair at 772-419-0057 or visit our website http://jonlmartinlaw.com/


WHAT ALLOWS DISCHARGE OF STUDENT LOANS IN BANKRUPTCY?

BloomburgBusiness recently published an article that pretty much shows the reality of how much “hardship” is required under the “undue hardship” standard when determining if a debtor can discharge student loans in bankruptcy. The Headline read:

“Courts Rule That Disabled Woman Living Below the Poverty Line Must Repay Student Loans”
“Despite proving that paying back her student debt would leave her unable to afford basic living expenses, two judges ruled a woman could not discharge it in bankruptcy.”

According to the article, an unemployed, disabled, 45 year old woman living far below the poverty line was not allowed to cancel more than $37,400.00 student debt in bankruptcy. That statement alone would suggest to most that under the “undue hardship” provision, she should be one of the rare few that are supposed to be allowed to discharge student loans in bankruptcy.

“NOT TO BE!” said the Judge, while acknowledging her income was only $10,000.00 per year derived from Social Security Disability and Public Assistance since 2008. Even though the debt had grown from the original amount of $13,250.00 to an astronomical $37,400.00 due to interest and late charges, the Judge ruled she didn’t satisfy the undue hardship test because one year she had earned an extra thousand Dollars and had not paid any of it towards her student loans!!!??!!!

The court noted that she might be eligible for a Federal Loan Student Consolidation Program in which she would not be required to make ANY payment as long as her income didn’t increase! Then, in 25 years the loan would be forgiven!

Let’s see . . . she’s 45 now . . . in 25 years she’ll be 70. Then she’ll get her fresh start!  Really? She might even be able by then to retrain and get a job that pays enough for her to live on, AND pay those student loans she’ll need to get the re-training she’ll need to get a job that will pay enough to cover it all! (Maybe you’d like to help her out by guaranteeing her new student loans since her credit will still be in the can and she won’t have enough income to qualify otherwise!)

At a time when Student Loan Debt AND default has reached critical mass, this Judge has raised the bar even higher. Lack of employment opportunities that pay enough to retire the debt that was supposed to provide the means to pay the loans (which now are exceeded only by mortgage debt), has sentenced student loan borrowers (and in many cases their parents and even grandparents) to a life of indentured servitude to the government. (Or to the private investors who buy these loans!) Instead of Guaranteed student loans, we now have GUARANTEED STUDENT LOAN HARDSHIPS!

Need more information? Contact Jon L. Martin- Chair at 772 419 0057. Better yet, if you’d like to change this before YOU end up the same, write your Congressman and your Senator to amend the bankruptcy code to allow discharge of student loans in Bankruptcy. It’s YOUR problem too!

  

1. Truth is, if the lender is not going to report to the credit bureau, the debt to income ration should be minimized by not reaffirming the mortgage.

2. Borrowers struggling through a Chapter 13 have a hard time making mortgage payments on time; thus the likely hood of negative information is high if reaffirmed.


3. If not reported, the borrower can name thepayment here or there, catch up payment, and pay whatever late fees accrue; all without risking a negative trade line on a credit report.


Learn more about how our legal expert can protect you from debt and help you understand the bankruptcy process. Contact us today for more information.
Address: Bankruptcy Law Office of Jon L Marin Esq901 SW Martin Downs Blvd #309, Palm City, FL 34990Call Us: 772-419-0057 jlm@jonlmartinlaw.com


  

1.    You only need to pay the minimum each monthYour creditcard bill will show the total amount you owe and a minimum payment, typically about 4% of your bill. Paying at least the minimum payment bythe due date keeps you current and helps your credit score, a key way lenders grade your financial behavior.

However, if you payonly the minimum, youll still pay interest on the whole balance that you owe, at interest rates that are among the highest in the financial world.
Your bill must show how long it will take to pay off your debt if you make only the minimum payment each monthand thats usually a frightening amount of time.
In reality, the minimum payment is something of a ruse, essentially an enticement to get you to pay just enough to keep current while also running up high interest charges.
As you accumulate interest charges, your interest will actually begin to compound not just on what you owe, but also on your interest payments. In other words, you will be paying interest on interest.


 If you cannot pay the entire bill each month, pay as much as you possibly can.
2.    Your credit limit reflects what you can afford.  In reality, your credit limit has no relation to what you can afford—or how much you should spend.
The credit-card company has looked atyour record of paying your bills and your other accounts and decided how much it is willing to loan you at onetime. It doesnt have aclue if you really can pay off that much debt because it doesnt know how much income you have right now or your net worth.
You may be tempted to see a credit limit of $10,000 or more as a license to spend. But likely, thatdecision will put you in a financial holeand maxing out your debt will hurt your credit score.

3.    The interest rate will stay thesame over time. This isnt likely. The Credit Card Act of 2009 restricted how creditcard companies can raise fixed interest rates. In response, most companies that offered fixed interest rates changed them to variable rates; those variable rates will go up when other interest rates go up.
In addition, you will pay different interest rates on different kinds of borrowing. If you use your card to get cashsomething you should do only in a true emergencyyou may pay an annual interest rate above 20%, probably far more than what you pay for regular purchases.

If you are late making a payment or ifyour check bounces, your interest rate for new purchases can spike up to around 30%, and that rate can continue indefinitely.

4.    The interest rate is theonly charge that I’ll seeNo such chance. Creditcard companies will hit you up with all kinds of additional charges when you make a mistake. Did you makea payment after the due date or miss one altogether? Youll be assessed a late fee of as much as $35.
Transferring a balancefrom one card to another? Youll pay a fee of up to 5% of the balance. Using your credit card instead of your debit card to get cash? Youll pay another fee of up to 5% of the amount, or a minimum of $5 or $10. Using your card overseas? Foreign transaction fees of up to 3% of the transaction may be assessed.
In short, the more you rely on thecredit card, the more you will pay for the privilege. Using a card that waymay make sense in a real pinch, but its a terriblehabit to get into because the interest rates and fees are so high that it can be hard to dig out once youre in thehole. Youll pay more and more just to keep your debt from growing.
On the other hand, if you pay your bill in full every month, the credit card works for you, rather than the other way around.



  1. Damage control. Make sure all the accounts you included in your bankruptcy are listed as such, and show $0 balances if you filed Chapter 7.  If a creditor continues to report the account as delinquent –which they shouldn’t- your credit score will suffer.
  2. Get new credit cards.  That’s the most important step in your bankruptcy recovery.  If you can’t get approved for an unsecured credit card, start out with a secured card. With a secured card, you will make a deposit with the credit card issuer, which will in essence be your credit limit. Typically, after a year to 18 months of on-time payments, you could graduate to an unsecured card.
  3. Piggyback.  If you have a trusted friend or relative, ask them to make you an authorized user on one of their credit cards. Your bankruptcy won’t affect your friend’s credit, but you automatically get the account history for that card in your report.
  4. Bigger loans.  What about auto and mortgages? You can start shopping for auto loans as soon as a few months out of bankruptcy.  Traditional banks are likely to turn you down, but the financing folks at the dealership may be more lenient, especially if they’re in a bind to meet sales quotas. Mortgage lenders will want to see at least two years of good credit behavior. However, Fannie May has just reduced the waiting time to one year for ‘victims’ of the real estate collapse who have re-established a good payment schedule. 

1. Personal bankruptcy is not just for the poorLinda Johnson, an entrepreneur in Georgia, built a life around her six- figure income. But when her new business collided with the credit crunch, Johnson found herself facing a financial fate she never anticipated. “It’s a far way to fall,” she says. Meet the new face of bankruptcy. This nation’s worst downturn in 70 years pushed more formerly affluent people into bankruptcy than in previous recessions. Overall, personal bankruptcy filings were up 36.5 percent in the first half of 2009 from the same time a year ago, and experts predict the number of filings will keep rising even as the economy recovers. Last year the institute surveyed likely bankruptcy filers and found 8.1 percent made more than $60,000, up from 6.9 percent in 2007. Experts blame the increase on slumping real estate and job losses, which have cut deeply into professional positions.

2. When it comes to bankruptcy, one size doesn’t fit all.  No type of bankruptcy will eliminate certain kinds of obligations, like child support, alimony and most student loans. But there are differences in the way debt gets handled in personal Bankruptcy, often depending on which kind you file for, either Chapter 13 or Chapter 7. And each has pros and cons. Chapter 13 allows those with regular income to repay debts over three to five years. That drags things out a bit, but it stops the foreclosure process, meaning debtors behind on their mortgage can keep their house and catch up on payments over time. Those without regular income must file Chapter 7, which involves no payment plan—all eligible debt, such as credit card balances, gets wiped out. But it’s hardly a free pass. Most debtors find the process pretty traumatic, not to mention severely damaging to their credit score. And Chapter 7 doesn’t stop foreclosure, so banks can still take the homes of debtors behind on a mortgage. How do you know which form is right for you? Bankruptcy law is complex, and certain provisions vary from state to state, so it’s often best for potential filers to consult an attorney before deciding.

3. We don’t want your house if we can’t get good money for it. A common belief about bankruptcy is that it will leave you with nothing, living out of a cardboard box.  But that’s not necessarily true, even in Chapter 7 cases. In theory, Chapter 7 involves liquidating most of a debtor’s assets to pay creditors, including the home. But in reality, homeowners who end up filing often don’t have enough equity in their home to benefit creditors, either because they’ve taken out a second mortgage, the home’s value has fallen or both. In such cases, the trustee handling the bankruptcy can decide not to liquidate the home, in which case the debtor gets to keep it. Also, there’s something called the homestead exemption, which in most circumstances allows you to keep your primary residence if your equity in it is below a certain threshold. It can vary widely from state to state: from $30,000 for a married couple filing Chapter 7 in Illinois, for example, to $75,000 for the same in California.  In Florida, if you’ve owned your home for more than 1,215 days the amount is probably limitless, depending on how the equity was obtained. But since Chapter 7 doesn’t stop foreclosure— although it tends to delay it by a few months—those behind on their mortgage often can lose their home regardless.

4. This could actually improve your credit score down the road. Yes, bankruptcy will pummel your credit score. Yet bankruptcy can be less damaging in the long run than juggling late payments on credit cards for years in a bid to postpone the inevitable. Bankruptcy stays on your credit report for 10 years, but you can begin repairing it immediately, if gradually. The fact is, most people go bankrupt with lousy credit. They’ll be able to return to (and maybe surpass) their prebankruptcy FICO score more quickly than the rare debtor with pristine credit who needs to file bankruptcy after, say, a serious illness—which could mean a credit score drop of 100 points or more. Since 35 percent of one’s credit score is based on payment history, the further consumers get from any missed payments, the more their score improves. How to quicken the recovery? Establish new credit as soon as possible, either through a new credit card or car loan, though bankruptcy filers will have to pay higher interest rates.

5. Debt-settlement firms may do more harm than good. Debt-settlement firms offer to play hardball with creditors and whittle outstanding balances by up to 75 percent. They bill their services as an alternative to bankruptcy, but in many cases they can hurt more than they help. Debt-settlement firms are unregulated, for-profit entities that require regular payments before taking any action on a consumer’s behalf. This business model works squarely against the debtors. They’re getting fees every month, so they have no incentive to settle [with creditors] as fast as possible.  In fact, you don’t need a middleman to negotiate with creditors. But, most debtors don’t have the “time, stamina or desire” to do it themselves. Either way, you’ll owe taxes on any amount saved on your debt. (That’s right: The IRS considers forgiven debt taxable income.) Debt erased as part of bankruptcy, by contrast, isn’t taxed

6. Don’t settle with Mom first or fudge the condo in Boca. Many debtors naturally want to pay back friends and family before filing for bankruptcy. Yet that can be a big mistake. Any money repaid to “insiders”—including relatives, friends and acquaintances, or business partners—within a year of bankruptcy is recoverable by the trustee. If the recipient doesn’t voluntarily return it, the trustee has the power to sue. A more serious infraction involves trying to hide assets from the court. So don’t even think about giving your Harley to your brother— or selling it for cheap—to protect it from creditors. Bankruptcy filers must list everything they’ve sold, transferred or given away over the past two years. And nothing can be transferred, given away or sold for less than market value. There are many ways bankruptcy “fudgers” get caught. Spurned lovers or creditors often turn them in.  I recall a case in which a lawyer read in the paper that a bankruptcy filer he’d represented a few years back was selling property. Turns out the filer had hidden the house from the court. He lost his bankruptcy discharge, letting creditors come after him again. Liars can also wind up in jail for perjury.

7. Better save up before you file.  This spring, Mary Smith realized she was in over her head. The entrepreneur from Long Beach, Calif., had incurred more debt than expected launching her business and wanted to explore the possibility of bankruptcy. Yet once she started pricing lawyers’ services, Smith realized she couldn’t afford to file Chapter 7. Lawyers suggested she borrow the money from family and friends. “I was so hurt by that,” says Smith, who hasn’t even told some of her loved ones about her situation. She’s hoping to file with the help of a legal-services nonprofit. Lawyers in Chapter 7 cases generally request payment up front; otherwise, their fees would be discharged during the bankruptcy process along with other debt. (In Chapter 13, part of the lawyers’ fees become part of the payment plan.) Consumers seeking advice can visit the National Association of Consumer Bankruptcy Attorneys to find a knowledgeable attorney nearby. There are usually ‘pro bono’ forums at the bankruptcy court, and we offer periodical clinics as well for local people in need.

8. Just because your bills stop coming, after filing bankruptcy, doesn’t mean you shouldn’t pay them. Not only does filing for bankruptcy stop collection calls, but most bills stop coming too. That’s because the courts immediately file an injunction that prohibits collection actions against the debtor or his property. But that doesn’t mean debtors are suddenly released from payment obligations for secured possessions they want to keep—that’s legal lingo for anything bought with collateral, like a car or house. During Chapter 7 proceedings, which usually last about four to six months, you must remember to pay for what you want to keep in the absence of a bill. (In Chapter 13, those bills are folded into the payment plan the court establishes.) Besides the house and car, secured possessions could also include an engagement ring or other jewelry. Debtors must decide to “reaffirm”—that is, keep and stay current on—any secured debt before all other debts are eliminated in bankruptcy. To do that, in the absence of a bill, contact the party you send payment to. For example, those with Chase auto loans should call the company for logistical (not legal) guidance, says a Chase spokesperson.

9. Timing is everything. When you owe more than you own, it’s time to consult a lawyer.  But that doesn’t mean bankruptcy is necessarily the next step.  It’s often best to wait until you think the worst is over, because if you file prematurely, you’ll likely incur more debt, which won’t be included in the bankruptcy discharge. For example, those facing hospitalization may want to postpone until that’s behind them. And for Chapter 7 filers who stand to lose their home, holding off on filing can maximize the time living in the residence without making mortgage payments. To do this, wait until the eve of foreclosure to file for bankruptcy, but don’t do this without legal advice. On the other hand, there are situations in which it’s best not to wait. Those with no hope of repaying debt often have little to gain by postponing. In such cases, it’s usually better to bite the bullet sooner rather than later.

10. Bankruptcy doesn’t have to be the end of the world. There’s nothing easy about bankruptcy. It can be especially hard for middle-class filers who face a swift and unexpected slide down the socioeconomic ladder. And those who file for medical reasons suffer the double burden of health problems and financial distress. An important part of the coping process, mental-health professionals say, involves acknowledging the normal feelings of depression, fear and anger that often accompany bankruptcy. But many people emerge from it stronger than they expected. It helps that bankruptcy has become more widespread these days, lessening its stigma. Before she filed, Johnson, the Georgia entrepreneur, dreaded the process and worried about how it would leave her. “I thought I’d be living in a double-wide,” she says. Instead, she parlayed her marketing skills into a deal on a new rental when she lost her home in Chapter 7. (She offered to market the subdivision in exchange for a lower rent.) She lost her old Chevy but got a bargain on a used Jaguar. More rewarding than these material comforts, Johnson says, was that she emerged from bankruptcy with her friends, her family and her faith intact. Indeed, support networks often make all the difference in helping people cope with bankruptcy, counselors say, so don’t be ashamed to reach out.

Raiding your 401(k). Don’t think of retirement savings as “now” money. It’s moneyyou’ve got to save for later. “Some people use their IRAs, and wind up in bankruptcy,anyway.” Even if you end up having to use it post bankruptcy, it will go a lot further towards survival of your family after bankruptcy; when you are…

1.    Don’t leave out bank, checking, savings, brokerage,   credit union accounts.
2.    Don’t use your credit cards.
3.    Don’t take credit cards cash advances.
4.    Don’t use convenience checks.
5.    Don’t make balance transfers.
6.    Don’t pay debts to family.
7.    Don’t pay debts to friends.
8.    Don’t tell a creditor you intend to pay.
9.    Don’t leave assets of any kind off of your paperwork.
10.  Don’t fail to tell your attorney about your     small business, sole proprietorship,                                   partnership,  LLC, LLP, LC, Corporation or hobby.
11.  Don’t give of gift property to anyone.
12.  Don’t transfer assets to anyone unless it is a genuine sale for fair value.
13.  Don’t cash out retirement plans or 401k’s.
14.  Don’t gamble.
15.  Don’t hide assets or debts.
16.  Don’t forget timeshares or co owned property.
17.  Don’t omit unfiled legal claims you have.
18.  Don’t forget stock options, profit sharing plans, or pension rights.
19.  Don’t take out payday loans.
20.  Don’t put your money in your children’s bank account.
21.  Don’t omit or ‘save” a credit card for after your bankruptcy.
22.  Don’t fail to list debt to family or other “insiders”.
23.  Don’t write bad checks.
24.  Don’t give creditors postdated checks.
25.  Don’t borrow money without talking to your attorney first
26.  Don’t forget to tell your attorney about liens or unpaid judgments on your home.
27.  Don’t make major financial decisions without talking to your attorney.
28.  Don’t misrepresent facts to your attorney.
29.  Don’t bank where you owe money.
30.  Don’t take your name off a title to any asset.
31.  Don’t assume you understand bankruptcy fully, ask your bankruptcy lawyer.

1. Confirm a chapter 11 or chapter 13 plan under §1123 & §1129(a) although both are ride with too many complications to address here.

2. Redeem it.  Special rules apply to certain vehicles but essentially the debtor is entitled to buy the property from the estate at a value determined by the court, Say a debtor owes $29,000 on his dually/diesel pickup he uses personally that he bought more than 910 days prior to filing. The court determines the value is only $17,500.  The debtor can borrow the money from an outside source and keep the truck by paying the creditor $17,500.  The balance is treated as an unsecured loan. Where is
a debtor going to borrow $17,500? There are lenders out there who makes those kinds of loans.

3. Reaffirm the debt, either at the present contract rate and terms (if the debtor cannot do better); or some mutually agreed modification of it.

4. Claim it as exempt. Since secured debt owed on property diminishes the equity the owner has, there is often little that needs to be exempted. Moreover, many debtors are so far upside down in the mortgages on their homes, that they are electing to surrender them, thereby availing themselves larger allowances.

On March 24th, The Supreme Court heard oral arguments in the cases of  Bank of America v. Caulkett and Bank of America v. Toledo-Cardona.

Ever since the 11th Circuit turned Chapter 7 lien stripping on personal residences on its ear, Bank of America has been desperate to get the arguments involved in these cases before the U. S. Supreme Court. The ability to strip unsecured 2nd and 3rd Mortgages from personal residences in Chapter 7 has the potential to help 10’s of thousands of homeowners by reducing the indebtedness on their homes. Chapter 13 has allowed debtors to strip totally unsecured 2nd and 3rd mortgages from their homes for years, thus allowing debtors to retain their homes and provide for their families during harsh economic circumstances.
            
Bank of America argues that the  “Dewsnup”case (which was concerning limiting reduction of a FIRST Mortgage on a debtors home), should apply equally to 2nd and 3rd mortgages, even if the value of the home is LESS  than the amount of the primary mortgage, thereby leaving subsequent mortgages totally unsecured.
            
The 11th Circuit and the homeowners in the cases, argue that since Primary and “Dewsnup” are unaffected by stripping of totally unsecured secondary mortgages, the same logic should apply to Chapter 7 debtors that allows Chapter 13 debtors to strip secondary mortgages.       In reading the transcript from oral argument, it seems clear, that even a divided court was having difficulty finding Bank of America’s argument compelling.
            
At one point the conversation went off course when Justice Breyer expressed concern about business and commercial secondary financing having disproportionate impacts compared to residential mortgages because of the much larger size of these loans. However “Dewsnup” refers to PRIMARY mortgages on residences. Investment properties are not affected by “Dewsnup” because they can be stripped to value anyway. Justice Scalia, who dissented in “Dewsnup”, would clearly overturn “Dewsnup.”
            
In reality, “Dewsnup” would probably not be an issue today but for the collapse in real estate values, partially brought on by the race between lenders to capture as much of the higher interest rates secondary mortgage financing yields; a feeding frenzy brought on by illusionary increases in value fed by an overheated real estate market. Lenders never considered that real estate values could go down, let alone collapse. The race for higher profits seems to have diminished the “superior expertise” of the experts!
            
The major lender’s (Bank of America included) have had their bail outs. “HAMP” and “HAMP 2” have been largely ineffective for the majority of people applying for relief through those programs. Even though lenders were supposed to apply the programs in good faith, it has not been until lenders realized even they could not support owning every home via foreclosure that better results are starting to happen.

It could also be that bringing the programs into the oversight programs developed in Bankruptcy Court has also had a major hand in producing better results. In the Southern and Middle Districts of Florida, the success rate in Bankruptcy Court for obtaining modifications has been a resounding 72-82% success ratenas opposed to the unsupervised efforts by lenders of just 4% success nationwide. Regardless of these numbers, strapped homeowners may get their “bailout” with the coming decision. The pendulum may just start swinging the other way.