September 25, 2017

Can Student Loans Be Discharged in Bankruptcy?

Yes, they can.  But it is a very difficult, and expensive process.  This blog entry discusses student loans in the context of both a chapter 7 and chapter 13 bankruptcy case.

Student loans can only be discharged in bankruptcy if the debtor can show that the student loans cause “undue hardship.”  To show “undue hardship,” the debtor must meet three criterion (known as the “Brunner Test”).  These criterion are:

1.  Repayment of the loan would prevent the debtor from maintaining a minimal standard of living;

2.  The debtor’s financial situation is likely to continue for the foreseeable future; and

3. The debtor has made a good faith effort to make payments on the student loan in the past.

If a debtor successfully meets all criteria listed above, the debtor can show that there is undue hardship, and the student loan can be discharged in bankruptcy (this usually requires litigation, though).  However, it is extremely difficult to meet all three criterion.  Often, the federal student loan creditors (government) may make the argument that the loans can be repaid through an income based repayment plan, and be stretched out over several years.  The aim of this approach is to show that the debtor can make payments, especially given the different repayment options available.

There are other ways to approach student loans outside the context of bankruptcy.  This consists of different programs available, especially for federal student loans, such as the income-based repayment plan.   Alternative methods for addressing student loans outside of bankruptcy will be discussed in future posts.

If you have questions about student loans and bankruptcy, please call today to schedule your free in-office bankruptcy consultation in Eugene.

 

Bankruptcy in a Nutshell

Bankruptcy is a federal procedure that allows a debtor (the person who files bankruptcy or a business) to discharge his or her debts, or repay those  debts under a supervised bankruptcy plan.  For consumers, there are two primary types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankrutpcy.  Chapter 7 bankruptcy will allow a consumer to discharge or eliminate most classes of debt, and generally lasts about 90 days; a Chapter 7 bankruptcy is generally known as a “liquidation” bankruptcy.  On the other hand, a Chapter 13 bankruptcy is a “reorganization” bankruptcy, whereby a debtor makes monthly payments into the bankruptcy plan for 3-5 years, based on what the debtor can afford. In a Chapter 13 bankruptcy, some debts must be paid in full, while other debts may be partially paid or paid not at all depending on a debtor’s specific circumstances.

As soon as a debtor files either chapter of bankruptcy, an “automatic stay” is triggered, which essentially is a restraining order against most of the debtor’s creditors from continuing to collect a debt, pursuing a lawsuit, or garnishing the debtor’s wages or bank accounts. In certain circumstances the bankruptcy stay may be lifted, or may not apply at all depending on the type of creditor.

Most debts will be discharged as a result of a bankruptcy, such as medical debt, credit card debt, and so on.  Some debts may not be discharged as part of a bankruptcy, meaning these debts continue.  Such debts may include student loans, child support, certain tax debts, and so on.

If you would like to learn more about how bankruptcy may improve your financial situation, please call today to schedule your free in-office bankruptcy consultation here in Eugene.

Mortgages, Modifications, and Bankruptcy: Some Practical Considerations

Often I will meet homeowners who have fallen behind on their mortgage payments and are facing a potential foreclosure, or who may even be in the middle of a foreclosure.  Often, it is my job to perform triage with the situation; and depending on the situation, there are several options available to the homeowner.  This post will address some of these options, and focus on practical solutions.

Foreclosures in Oregon often are conducted judicially.  This simply means that the foreclosure is an action completed through the court.  If a foreclosure lawsuit is initiated, the homeowner will receive a summons and complaint, and be provided 30 days to answer.  Often, it is when the homeowner receives a copy of the complaint and a summons that he or she will contact my office for a free appointment to discuss options.  These options range from foreclosure defense to bankruptcy to, even in some cases, walking away from the property or placing the property up for sale.  This post will focus on saving the property either through foreclosure defense or filing a Chapter 13 bankruptcy case.

1.  Foreclosure Defense: Foreclosure defense is just that; defending against a foreclosure action. If the homeowner is facing a foreclosure yet is not ready to consider bankruptcy (discussed below), foreclosure defense is a valid option.  Often, this takes the form of filing an answer in the foreclosure lawsuit, which provides additional time for the homeowner to reinstate the mortgage loan (and therefore brings the loan out of foreclosure, usually with a payoff of the arrears), or sell the house to recoup any equity in the house, or short-sell the house, or to seek a modification.  Usually, the latter option is chosen: the homeowner needs additional time to obtain a mortgage modification through HAMP or other modification programs.  At this point, I will have my clients go to NEDCO (Neighborhood Economic Development Corporation) or other housing counseling agency while I deal directly with the court and opposing counsel; NEDCO and other such agencies are a free resource to homeowners seeking help to avoid a foreclosure.  Sometimes, with the aid of NEDCO or other housing agencies, clients may be able to obtain a modification of the mortgage, and, as a result, the foreclosure case will be dismissed (and the house is saved from foreclosure).  But what if the client is unable to obtain a modification, yet wants to still keep the house?  We consider bankruptcy.

2. Bankruptcy as a Practical Tool to Stop a Foreclosure & Save the Home:  If foreclosure defense and mortgage modification do not pan out, we can file a Chapter 13 bankruptcy case (or we may just start by filing a Chapter 13 case and avoid foreclosure defense altogether).  A Chapter 13 bankruptcy will allow a homeowner to place the arrears (or amount of mortgage payments that are behind) in a plan to be paid down over 5 years at zero-percent interest rate.  At the same time the arrears are being paid, the homeowner must also pay current mortgage payments.  For example, a Chapter 13 bankruptcy to stop a foreclosure and pay down arrears may be used by a homeowner who lost a job, could not make payments on the house, but has since become gainfully employed and can now make payments on the mortgage and catch up on the arrears over time.  A Chapter 13 bankruptcy, therefore, is a very useful tool for saving a house from foreclosure.

At my meetings with clients, I discuss options available to saving a home from foreclosure.  This includes a discussion of Chapter 13 bankruptcy as well as foreclosure defense and mortgage modification.

If you are behind on your mortgage and are facing foreclosure, or if you have been served with foreclosure papers, please call for your free bankruptcy and foreclosure defense consultation here in Eugene.

 

 

 

Bankruptcy & Financial Education

You’ve taken the credit counseling course (“pre-bankruptcy” course) and filed either your Chapter 7 bankruptcy case or your Chapter 13 bankruptcy case.  And you may have gone to the meeting of creditors already (or completed most of your plan payments in a Chapter 13 bankruptcy case). But before you can receive your bankruptcy discharge, there is one more piece of the puzzle that must be completed: the financial education course.

The Bankruptcy Code mandates that every consumer who seeks a discharge in either a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case must first complete a course in personal financial management, and that this course shall last 120 minutes (or two hours).  Since the government does not provide this course, the private sector has answered the call.  There are many providers of this financial education course, and  the United States Trustee Program publishes a list of approved course providers.

But what is the financial education course and how is it different from the credit counseling course that is required prior to filing bankruptcy?  While a purpose of the credit counseling course (“pre-bankruptcy” course) is to determine if other options exist to a person considering bankruptcy (i.e. a repayment plan); the purpose of the financial education class is to help build skills for a consumer who is about to receive his or her bankruptcy discharge.  Simply put, the financial education course focuses more on your life after bankruptcy.  The financial education course covers such topics as money management and using credit wisely.  The course provides tools to help the consumer make good financial decisions going forward, such as developing a sound budget based on income and expenses., and making sound financial choices.

Once the course is completed through an approved financial education course provider a certificate will be issued by the course provider.  This certificate must then be filed with the Bankruptcy Court prior to the consumer receiving his or her bankruptcy discharge in either a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case. For example, I have my clients complete the financial education course and provide me with the certificate of completion.  Once I receive this certificate of completion I file it with the Bankruptcy Court on behalf of my clients.   Once this certificate of completion is filed with the Bankruptcy Court, and all other requirements of the bankruptcy are met, the consumer will receive his or her bankruptcy discharge.

If you have questions regarding Chapter 7 bankruptcy or Chapter 13 bankruptcy or the educational requirements that must be met as part of a bankruptcy filing, please feel free to contact my office for a free bankruptcy consultation in Eugene.

Bankruptcy & Credit Counseling

Before you file for either a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case, a credit counseling class from an approved credit counseling agency must first be completed. Commonly referred to as the “pre-bankruptcy class,” the credit counseling class is mandated by the bankruptcy code. A certificate is issued once the class is completed, and the certificate is filed along with your bankruptcy documents with the court. The certificate, however, is only good for 180 days. As a result, I usually have clients take the class and obtain the certificate shortly before they plan on filing either their Chapter 7 bankruptcy case or Chapter 13 bankruptcy case, to ensure that the clients do not take the class too early; if the 180 day period passes and a bankruptcy has not yet been filed, clients will be required to take the class again.

The Bankruptcy Code mandated that the credit counseling class is completed as part of a bankruptcy case filing (both Chapter 7 and Chapter 13 bankruptcy cases), yet the government does not offer these classes. The private sector has answered the call, and now there are many providers of this class. A list of providers is published by the United States Trustee Program.

What is the purpose of the credit counseling class as part of either a Chapter 7 or Chapter 13 bankruptcy filing? The stated purpose is to provide the consumer with an idea if bankruptcy is right for him or her, or if there are alternative routes that can be taken, even when it is clear that bankruptcy is the best or, possibly, only option available for the consumer.

The credit counseling course generally takes an hour to complete, and can be taken over the internet, by phone, or in person depending on the course provider. As part of the course, the consumer will list items such as income and expenses and debts. The credit counseling agency will then analyze the information supplied by the consumer and propose options of repaying the debt, outside of bankruptcy, if such options make sense.  Often, the conclusion of the course provider is that bankruptcy may be the best option.  And despite a proposal for a non-bankruptcy repayment plan by the counseling agency, the consumer can still choose the route of bankruptcy, if this proves beneficial.

If you are interested in learning more about Chapter 7 bankruptcy and Chapter 13 bankruptcy and the educational requirements leading up to filing a bankruptcy case, please call for your free in-office bankruptcy consultation in Eugene.

Median Income & Bankruptcy: Getting Through the Door for a Chapter 7 Bankruptcy

For consumers, there are two main types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy.  Chapter 7 bankruptcy is by far the most widely used form of relief in the bankruptcy spectrum.  But there are certain conditions that must be met to qualify for a Chapter 7 bankruptcy.  This post details the most important condition that must be met – the consumer who files bankruptcy must be below median income (in some cases the consumer can be above, but other conditions must be met).

The means test is based on US Census Bureau statistics and updates every 6 months. If you are below median income (theoretically half the people are below this threshold and half the people are above this threshold) then you automatically qualify for a Chapter 7 bankruptcy.  However, if you are above-median income, then you will not automatically qualify for a Chapter 7 bankruptcy (however, if you have certain deductions, such as high medical expenses or secured debt, you may still be able to qualify for a Chapter 7 bankruptcy).

The median income most recently was adjusted in May 2014.  It will adjust again in October.  Currently the median income for household size follows:

  • for a household of 1: a person qualifies  for a Chapter 7 bankruptcy if he or she makes less than $45,435 per year
  • for a household of 2: a person qualifies for a Chapter 7 bankruptcy if he or she makes less than $56,382
  • for a household of 3: a person qualifies for a Chapter 7 bankruptcy if he or she makes less than $61,582
  • for a household of 4: a person qualified for a Chapter 7 bankruptcy if he or she makes less than $71,849
  • For each additional person in the household, the amount increases by $8,100.

Even if you are above median income you may still qualify for a Chapter 7 bankruptcy.  If you do not qualify for a Chapter 7 bankruptcy, then a Chapter 13 bankruptcy is a consideration.

If you are interested in filing a Chapter 7 bankruptcy and want to know more about the means test, please call today for a free in-office bankruptcy consultation.

 

What is a Deficiency Balance and How Can Bankruptcy Take Care of It?

A deficiency balance is the remaining balance due to a lender after the lender repossess and sells the collateral in which it has a security interest in (i.e., a car), and the proceeds from the sale is not sufficient to pay the complete debt owed the lender.

A common example of a deficiency balance is with a car and the credit union that lent the money to purchase the car.  The credit union retains a security interest in the car.  If a borrower defaults on making payments on the car, the credit union can repossess the car, sell the car at auction (for usually a lot less than the car is worth on the private market), and apply the proceeds of the sale to its loan.  If an amount is still owing after the sales proceeds are applied to the loan, this creates a deficiency, and the credit union can sue in court to obtain a deficiency judgment against the borrower.  For example, a borrower owes $15,000 on a 2011 Ford.  The borrower defaults on the loan, and the credit union repossesses the car and sells the car at auction for $8,000.  The credit union applies the sales proceeds of $8,000 to the total amount owed ($15,000), and this leaves a deficiency balance of $7,000.  The credit union can then sue the borrower for the $7,000 deficiency balance.  Once the credit union obtains a deficiency judgment, the credit union can then garnish wages and bank accounts of the borrower.

HOWEVER, bankruptcy can take care of deficiency balances and deficiency judgments.  By filing bankruptcy, the borrower in the above example will no longer be liable for the deficiency balance or judgment, if obtained.

If you have a deficiency balance or judgment due to a car repossession, please call today to schedule your free in-office bankruptcy consultation.

 

Bankruptcy Filing Fees Set to Increase

The Judicial Conference has announced that filing fees for bankruptcy will increase.  This increase will affect all new bankruptcy cases filed on and after June 1, 2014.  Chapter 7 bankruptcy and Chapter 13 bankruptcy filing fees will increase by $29 each.

FEE INCREASE BREAKDOWN

  • The Chapter 7 bankruptcy filing fee will increase from $306 to $335.
  • The Chapter 13 bankruptcy filing fee will increase from $281 to $310.

These fees can still be paid on installments after the bankruptcy is filed.  

Please note that my attorney fee will remain the same.

If you have any questions regarding bankruptcy or the court fee for filing bankruptcy, please contact my office for a free consultation.  

 

 

 

FHA Mortgages & Bankruptcy: You May Only Have to Wait One Year After Bankruptcy to Qualify

Conventionally, it took two years, minimum, to obtain an FHA mortgage loan after filing bankruptcy, provided all required criteria were met.  The FHA (Federal Housing Administration, part of the U.S. Department of Housing and Urban Development) recently changed its guidelines to allow FHA mortgage loans to individuals only 1-year outside of bankruptcy.  This post discusses this program and how it may apply to consumers who recently filed bankruptcy.

FHA Mortgage Loans are government-backed mortgage loans, whereby the government insures lenders against borrower-defaults.  Often, borrowers pay a higher mortgage payment as a result of this insurance.  Should the borrower default on the mortgage, the mortgage lender may be made whole by the government.  Under this program, home mortgages are more-readily given to borrowers who are considered higher-risk, such as first-time home buyers, or borrowers who have a bankruptcy or a foreclosure in their past.

Traditionally, an individual would be eligible for an FHA Mortgage 2 years outside of bankruptcy.  However, the FHA has changed this 2 year waiting period to a 1 year waiting period, under certain circumstances.  This program is known as the FHA’s “Back to Work – Extenuating Circumstances” Program. To be eligible for this program a borrower must show:

1. That the borrower has experienced an “Economic Event,” which is any event beyond the borrower’s control that results in a 20% or greater reduction in the borrower’s household income for a minimum of 6-months due to loss of employment, income, or both;

2. That certain negative credit ratings resulted from this loss of household income or employment;

3.  That the borrower has made a full economic recovery; and

4. That the borrower has completed housing counseling

The FHA’s “Back to Work – Extenuating Circumstances” Program provides a vehicle whereby a loan may be guaranteed by the FHA, but the individual lender must still approve the loan in the first place.

If you are contemplating bankruptcy and are concerned about a future home purchase, please call today to schedule your free in-office bankruptcy consultation.

 

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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