Student Loans: Greater Than 15% While Americans Live Paycheck-To-Paycheck

I recently did a quick search on the internet to see how close Americans are, in general, to needing to file bankruptcy, and whether or not there have been any changes to the default in student loans. This, a least in part, is a reflection on our economy.

If you are contemplating bankruptcy, read the articles below. Hopefully you will not feel as if you are the only one in such a predicament. Even though I have not verified the facts listed within the articles, I find them interesting.

You need to know this. Welcome to America, where half the nation lives right on the razor’s edge. A stunning new report out of the Corporation for Enterprise Development, finds that 44% of Americans are just one financial shock away from complete ruin. Nearly half the nation doesn’t have enough savings to keep them out of poverty for more than 3 months, should they suffer a job loss, an accident, a sickness, or other financial setback. Another recent study out of the Consumer Federation of American, found that 40% of all American households live paycheck-to-paycheck, with virtually no savings. This is what’s become of the once valued American middle class after thirty years of trickle-down Reaganomics. And it’s the main reason why our economy continues to falter – our nation's working people and consumers don’t have enough money to spend. Let’s roll back the Reagan tax cuts – put in place a new wealth tax on everyone making over a billion dollars and redistribute some of that wealth down to working people, who will actually spend it.

…

The situation for college students in America continues to deteriorate. A new report published by FICO Labs, finds that the student-loan delinquency rate rose 22% from 2005 to 2007 – with more than 15% of all students being forced into default on their loans. The rapidly increasing price of college tuition, the cutbacks in government assistance for students, and the non-existent job market, are all conspiring together to saddle our next generation of leaders with enormous piles of debt. As the report notes, “in 2005, the average U.S. student loan debt was $17,233. By 2012, it had ballooned to more than $27,253 – an increase of 58 percent in seven years." How are our American workers supposed to compete with the rest of the world, and take risks, when they’re so deep in the hole by the time they graduate? We need to be sending our young people to college for free, like many advanced European nations already do.

Source: Truth-Out.org/news; On the News With Thom Hartmann: New Reports Finds 44 Percent of Americans One Financial Shock Away From Ruin, and More, January 31, 2013.

The bankruptcy code states, in general, student loans can not be discharged.  This means you will continue to owe the debt even after going through bankruptcy.  However, the bankruptcy code also provides for the discharge of a student loan if it is an "undue hardship".  The interpretation of what an undue hardship is varies greatly from court to court around the country.  If you owe a student loan and are contemplating filing bankruptcy, you should seek the advise of a competent bankruptcy attorney in your area.  You may also want to contact an attorney member of the National Association of Consumer Bankruptcy Attorneys (NACBA) to find out where their efforts stand with congress in getting student loans discharged through bankruptcy.

Can I File a Chapter 13 Bankruptcy: Who Can File?

So, after speaking with some attorneys (not your bar buddy that professes he knows the law) and doing some research, you believe a chapter 13 bankruptcy is what you need in order to achieve the relief you looking for. So now the BIG question is, “Am I eligible?”

That's right. Not just anyone can file a chapter 13. First, only an individual (or unincorporated business) can be a debtor in a chapter 13. This precludes a corporation or partnership from filing this chapter of bankruptcy; they may have to look at either a chapter 7 or chapter 11.

Secondly, this chapter of bankruptcy requires you have regular income. How this income is defined changes from one jurisdiction to another, but for the purpose of this discussion, we will presume you have a job that pays you on a regular basis, or you have bills paid for you on a regular basis. That's right, if someone else is paying you bills on a regular basis, this will be considered income an may help you in your filing of your bankruptcy.

Next, we need to look at your level of debt. Did you know you can actually have too much debt to be able to file bankruptcy. According to section 109(e), your unsecured debts must be less than $360,475, and your secured debts must be less than $1,081,400. I know what you are thinking...where in the world did they ever come up with these numbers? These numbers are actually based on the consumer price index, and change periodically.

Some other things you should consider include whether you have previously filed a chapter 13. That is, if you previously filed a chapter 13 bankruptcy, how long to you have to wait in before being able to file another chapter 13 bankruptcy?  An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).

And just like filing a chapter 7, an individual must have received credit counseling from an approved credit counseling agency, either in an individual or group briefing, within 180 days before filing. See 11 U.S.C. §§ 109, 111. (Note: there are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling.)

So, there is a little more to filing an chapter 13 bankruptcy than you thought, isn't there? If you are thinking of filing a Chapter 13 (especially a chapter 13), you should seek the advise of a competent bankruptcy attorney in your area. Many attorneys offer free consults for people contemplating bankruptcy.

Mail Scam

From time to time, I run across a new for of fraudulent activity, otherwise known as a Scam, and when I do, I try to disseminate it by posting it here. I know this is not directly bankruptcy related, but any time I come across something that could end up costing one of my clients money, or their identity to be stolen, I consider it relevant.

Recently in Palm Beach, Lee County, Florida, the news media reported a scam involving the United States Postal Service. The report is as follows:

If you're planning on shipping holiday packages this season, beware. The Lee County Sheriff's Office wants to warn you about bogus emails claiming to be from the post office or other shipping companies.

Fraud specialist, Beth Schell, with the sheriff's office, says the emails contain false information about a package that could not be delivered.

How to tell it's not real?

"Some of the grammar and the spelling was incorrect. On the top it said USPS. But inside the label they forgot one of the 'S's," explained Schell.

Here's the most important thing: the USPS says it will never send an email regarding packages it cannot deliver. "Basically the consumer needs to be aware of receiving any emails they don't solicit with instructions to click," Schell said.

If you do click, it could activate a virus that can steal your personal information.

Can I Go To Jail For Filing Bankruptcy?

File bankruptcy and go to jail? I know what you are thinking, “You kidding, right?”.  Whenever you ask someone about this, you hear there is no way you could end up in jail; after all, there is no Debtor's Prison in the United States.  

Well, the simple filing of the bankruptcy is not what can put one in jail, however, the circumstances surrounding the filing could. For example, if you make a false statement on the papers filed with the court which are signed under penalty of perjury (which is almost everything that is filed), one of the penalties for doing so in bankruptcy is not only having the case dismissed, but referred to the U.S. Attorney for prosecution. That's right, this becomes a criminal offense.

Next, you are probably thinking this never happens. If it did, then you would have heard about it, right?

Well, think again. The following is a short article of a high profile case involving bankruptcy fraud:

Federal prosecutors in Los Angeles are asking that former All-Star outfielder Lenny Dykstra serve a 2½-year prison sentence for pleading guilty to bankruptcy fraud and money laundering.

Prosecutors said in court documents filed Thursday that a 30-month sentence is appropriate for Dykstra because he has acted as if he was above the law for years.

Dykstra could face 20 years in prison after pleading guilty in July to charges that he hid and sold sports memorabilia and other items which were supposed to be part of his bankruptcy filing.

Dykstra is currently serving a three-year prison sentence after pleading no contest to grand theft auto and providing a false financial statement.

He is scheduled to be sentenced Dec. 3.

Homestead Exemption: Should I Claim?

So, you are in Florida, need to file bankruptcy, and your house is upside down.  Well, not literally; upside down means your house is worth less than what is owed on it.  In Florida, if you do not claim a homestead exemption in your bankruptcy, you are eligible for a $4,000 wild card exemption.  This means you will be able to keep $4,000 of property that would otherwise be property of the bankruptcy estate, and sold by the trustee (usually sold back to the debtor).

So, what is the problem?  The problem arises when you do not claim the household exemption, you expose your property to being administered by the Trustee.  That is, the trustee could sell your house.  Of course, if you claim the homestead exemption, the property is protected, though the creditor may continue to hold a secured lien.

In the past, the practice has been to simply not claim the homestead exemption when the home is upside down, thereby entitling the debtor to the wildcard exemption.  After all, the property has negative equity, and who would want to purchase property for more than what it is worth.  Also, the trustee could only administer the estate (sell the property) if there is money to distribute to unsecured creditors.

Well, there are some Trustees in Florida currently administering property that is upside down.  Apparently, the Trustees have found investors willing to pay a small sum to acquire parcels of real property.  The investors acquire property with a low monthly mortgage payment, with financing in place, and rent the property for enough to hopefully show a positive return on their investment.  This is happening despite the property be acquired blindly, that is, the investor has no idea how much money will need to be spent on the property in order to put it into rentable condition.

In the specific case I am thinking of, as of today, an investor may be acquiring property in one of my cases, only having to bring the electric up to code, and repairing the roof.  There may be, of course, unknown problem, such as termite damage, mold, and possible plumbing problems.  After all, this property is owned by a debtor that is filing bankruptcy.  They have not had money necessary to properly maintain the property.

It will be interesting to see if this trend continues as investors acquire these properties with increased risk.

LATEST SCAM: Pay Up or Go To Jail

“Pay Up, or you are Going To Jail!!” 

Have you ever received a phone call like this one from a credit collection agency. As you may have already guessed, this is a clear violation of the Fair Debt Collection Practices Act, and may be a criminal violation of federal and/or state code depending on the debtor, such as a handicapped or elderly person.

Recently, a client of mine received such a phone call. The person left a message on a voice mail system stating my client would go to jail if the funds were not paid today, and left a return number. It appeared on the surface this person had a lot of nerve. Not only does it appear the person was committing a clear violation of the Federal Code, but had the nerve to leave the message on voice mail.

What would you do if you received such a call? Would you call them back? Would you call an attorney?  Would you file bankruptcy ASAP? 

In this particular situation, my client called the creditor, instead of the call-back number, to find out why jail was being threatened.  After all, clearly credit collection companies, also known as debt collectors, can not make such statements.  This is also out of character for this particular creditor, with whom my client has had a good business relationship.

 It turns out, the creditor had never given this account to a credit collection company for collection. The creditor has no idea how anyone was able to obtain person information about my client, and assured my client they would never threaten jail for not paying.

How is this a scam? 

It appears the call originated from over seas, as when the number left on the voice mail was returned, the person on the other end of the phone spoke with an accent. The person also refused to disclose the name of their company.

In short, this was a SCAM. Someone overseas found out my client owed a particular creditor money, and was able to obtain my client's phone number. When my client asked for the name of the company, the person on the other end hung up. Had the conversation continued, I imagine the scam artist would have asked for personal information, such as bank account numbers, date of birth, social security number, etc.

So, if someone calls you with a threat that could lead you to disclosing personal information, call your creditor and find out what is really going on. It could be a scam attempting to get you to disclose personal information. Don't disclose personal information when you do not initiate the call from a number you have independently of any number left on a recording device.

NACBA ALERT: Debt Settlement Schemes

The following was taken from an October 17, 2012 release by the National Association of Consumer Bankruptcy Attorneys entitled:

NACBA:   COSTLY DEBT SETTLEMENT SCHEMES PREY ON THE MOST DEBT-BURDENED CONSUMERS STRUGGLING TO RECOVER FROM ECONOMIC DOWNTURN

What a Half Million Unwary Consumers Don’t Know:  Schemes Only Work for 1 in 10 Who Pay for Them; Consumer Alert:  Debt Settlement Programs Seen as “#1 Threat to America’s Most Indebted Consumers.”

As few as one in 10 unwary consumers who are lured into so-called “debt settlement” schemes actually end up debt free in the promised period of time, making the risky schemes the No. 1 threat facing America’s most deeply indebted Americans, according to a major new consumer alert issued today by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA).

Available online at http://www.nacba.org, the NACBA consumer alert notes:  “Already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, America’s most deeply indebted consumers are now falling victim to a major new threat:   so-called ‘debt settlement’ schemes that promise to make clients ’debt free’ in a relatively short period of time.  Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses. Even the industry acknowledges – though not in its ever-present radio and online advertising – that debt settlement schemes fail to work for about two thirds of clients. Federal and state officials put the debt-settlement success rate even lower – at about one in 10 cases – meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”

The private debt-settlement industry remains robust.  More than 500,000 Americans with approximately $15 billion of debt are currently enrolled in debt settlement programs, according to industry estimates.  And there is room for further growth:   One in 8 U.S. households has more than $10,000 in credit card debt.

Durham, NC bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president, said:   “Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America’s most deeply indebted consumers today. Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn.   These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.” 

Earlier this year, NACBA focused national attention on the “student debt bomb,” which then was identified as the fastest growing consumer debt problem being handled by consumer bankruptcy attorneys.

Richard Thompson, a Rialto, California, retiree and victim of a debt settlement scheme, said:    “I was told they could settle my $89,000 in debts for a total of $39,000 if I made payments of $1,800 for 22 months.  I was contacted about a chance to settle $15,000 debt for $6,000 but my debt-settlement company ignored the offer.   In fact, I paid them a total of $25,200 as they kept on ignoring settlement offers from creditors.  I thought they were taking care of me by bringing my debt down, but all they were doing was taking my money.   I ended up with $25,000 more in debt than I started out with.   Before I retired I worked 25 years as a manager, now I have had to go back to work as a part-time security guard to help make ends meet.”

Bankruptcy attorney Trisha Connors, a NACBA member from Glen Rock, New Jersey who has testified before the New Jersey Law Revision Commission on debt settlement abuses, said:   “Over the last three years, I have worked with 12 different for-profit debt settlement companies and over 25 clients who came to me after their debt settlement program failed to serve them.  The results with each client were the same:  exorbitant fees being paid, settlement (at best) of one small credit card debt, and mounting late fees and penalty interest charges on the unsettled debts.  When clients informed the debt settlement companies of their desire to exit the program, the firms kept all or most of the accumulated savings for debt reduction as ‘fees.’  Every person I dealt with who had been current on their debts prior to contacting a debt settlement program told me that the sales representative told him the only way to be successful in the program is to stop paying credit card bills.”  

Ellen Harnick, senior policy counsel, Center for Responsible Lending, said:   “Debt settlement companies require clients to default on their debts before they will negotiate.  This adds late fees and penalty interest to their debt and frequently results in the client being sued by creditors.  Since only a tiny proportion of debts are actually settled by these companies, clients are typically left worse off than they were when they started.”

In addition to highlighting the stories of three victims of debt settlement schemes, the NACBA consumer alert notes the following:

•    There is now across-the-board agreement on the danger that debt settlement schemes pose to consumers.  The Better Business Bureau has designated debt settlement as an “inherently problematic business.”  Similarly, the New York City Department of Consumer Affairs called debt settlement “the single greatest consumer fraud of the year.” Across the country, the U.S. Government Accountability Office (GAO),  the Federal Trade Commission, 41 state attorneys general,  consumer and legal services entities, and consumer bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of debt settlement companies.

•    Debt settlement schemes encourage consumers to default on their debts.  Because creditors frequently will not negotiate reduced balances with consumers who are still current on their bills, debt settlement companies often instruct their clients to stop making monthly payments, explaining that they will negotiate a settlement with funds the client has paid in lieu of their monthly debt repayments.  Once the client defaults, he or she faces fines, penalties, higher interest rates, and are subjected to increasingly aggressive debt-collection efforts including litigation and wage garnishment. Consequently, consumers often find themselves worse off than when the process of debt settlement began:  They are deeper in debt, with their credit scores severely harmed. 

•    “Self help” may be the best answer for smaller debt burdens.   If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may be able to negotiate favorable settlement terms with the creditor yourself.  Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt so you will need that much cash for a successful offer.  Be sure to get an explicit written document from the creditor spelling out the terms of the debt settlement and relieving you of any future liability.  Also be prepared to pay income taxes on any of the forgiven debt.

•    Nonprofit credit counseling agencies can help, but must be vetted carefully.  If, like most people, you owe multiple creditors and do not have the cash on hand to settle those debts, you may want to consult a non-profit credit counseling agency to see if there is a way for you to get out of debt.  But make sure to check it out first: Just because an organization says it’s a “nonprofit” there is no guarantee that its services are free, affordable or even legitimate.  Some credit counseling organizations charge high fees (which may not be obvious initially) or urge consumers to make “voluntary” contributions that may lead to more debt. The federal government maintains a list of government-approved credit counseling organizations, by state, at www.usdoj.gov/ust.  If a credit counseling organization says it is “government approved,” check them out first.

•    Bankruptcy will be an option for some consumers.  Bankruptcy is a legal proceeding that offers a fresh start for people who face financial difficulty and can’t repay their debts.  If you are facing foreclosure, repossession of your car, wage garnishment, utility shut-off or other debt collection activity, bankruptcy may be the only option available for stopping those actions.  There are two primary types of personal bankruptcy:  Chapter 7 and Chapter 13.  Chapter 13 allows people with a stable income to keep property, such as a house or car, which they may otherwise lose through foreclosure or repossession.  In a Chapter 13 proceeding, the bankruptcy court approves a repayment plan that allows you to pay your debts during a three to five year period.  After you have made all the payments under the plan, you receive a discharge of all or most remaining debts.  For tax purposes, a person filing for bankruptcy is considered insolvent and the forgiven debt is not considered income.  Chapter 7 also eliminates most debts without tax consequences, and without any loss of property in over 90 percent of cases.  To learn more about bankruptcy and whether it makes sense for you, go tohttp://www.nacba.org/Home/AttorneyFinderV2.aspx.

NACBA urges consumers to steer clear of any companies that:

•    Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet is to contact the creditor directly as soon as you have problems making payments.

•    Require substantial monthly service fees and demand payment of a percentage of what they’ve supposedly saved you. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee-- a percentage of the money you’ve allegedly saved.

•    Tell you to stop making payments or to stop communicating with your creditors. If you stop making payments on a credit card or other debts, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score will also suffer as a result of not making payments. 

•    Suggest that there is only a small likelihood that you will be sued by creditors.  In fact, this is a likely outcome.  Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against you.  Creditors have the right to sue you to recover the money you owe. And sometimes when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. 

•    State that they can remove accurate negative information from your credit report. No company or person can remove negative information from your credit report that is accurate and timely.   

Boltz emphasized:  “Many different kinds of services claim to help people with debt problems.  The truth is that no single solution works in all cases.  Bankruptcy is an option that makes sense for some consumers, but it’s not for everyone.  For example, the National Association of Consumer Bankruptcy Attorneys and its individual consumer bankruptcy attorney members do not encourage every person who looks at bankruptcy to enter into it.   What makes sense for each consumer will depend on their individual circumstances.  We encourage everyone to get the facts and do what makes the most sense in their situation.”