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Budgeting After Bankruptcy (Part Two)

Budgeting After Bankruptcy (Part Two)

by Russell A. DeMott, Charleston Bankruptcy Lawyer

In “Budgeting After Bankruptcy (Part One),” I explained that the purpose of budgeting: to create wealth.  It boils down to spending less than you make.  The difference increases your net worth.

But how do I do this?

First, don’t sweat the small stuff.  Most financial articles about budgeting stress tracking all of your expenses. How much do you spend on utilities, food, clothing, entertainment, etc?  Tracking every penny is a great idea, but the problem is that almost no one does it, or will do it. People have jobs–sometimes more than one–kids, parents, and other responsibilities.  Most folks just aren’t going to do this.  Call me a budgeting heretic, but I’m going to embrace reality here. You don’t need to do it–at least not obsessively.

Second, DO sweat the big stuff. You just got your bankruptcy discharge. Let’s talk about big expenses: house and cars.  Maybe you’re current on that $2400 a month mortgage on the house you have little to no equity in.  Maybe you’re also current on those two auto loans as well.  But do you need these things?

Sure you need a house, but why not consider renting one for $1500 a month?  Why not let one car go?  (Remember, you discharged the debt in bankruptcy if you did not reaffirm the debt.)  You can rent for three years and save over $32,000 in mortgage payments plus maintenance costs, which can be very significant.  After the three years is up, buy a home with a payment of $1500 or so per month. This strategy is especially wise if your home is “upside down” and you have no equity in it.  I regularly see folks who owe $300,000 on a home worth only $225,000.  If you’re in this situation, why keep the home?

The same goes for cars. Why have a $450 per month car payment on a car in which you have no equity?  That might be a reasonable payment for your family car, but two $450 payments? (Or worse yet, one payment of $450 and one for $600!)  You get the picture. These are large, significant expenditures you are making each month and they do not create wealth.  This is the “big stuff” you need to sweat.

$455,646!

Huh? Welcome to the power of compounding! You’d have $455,646 if you took $12,000 per year ($1,000 per month) and put it in a 401(k) or IRA for 20 years–let’s say from the time you’re 45 to the time you’re 65, normal retirement age.  This assumes NO increase in contributions–just the $1,000 per month we saved on your house and car payments and assumes only a 6% return.  The fact of the matter is that your house is a huge expense.  Same for your cars.  Yes, you need housing and transportation, but don’t let these rob you of your ability to save.  Know the difference between needs and wants!

So think big!

The bottom line here is that you should start the budgeting process by targeting large expenditures before you worry about the small ones.  In “Budgeting After Bankruptcy (Part Three)” we’ll discuss how to implement this strategy.

5 Signs You’re Headed For Bankruptcy

Five Signs That You Are Headed For Bankruptcy

You know that you see the light at the end of the tunnel, but are you sure it is not the headlight of the oncoming train?  Here are some sure signs that you are heading straight for bankruptcy

  1. Denial – Life is good, I my job is stable, I’m making all my payments and I am not in default of anything.  Really?  Take a look around.  How any people do you know have retired from the same job they started at age 25?  What would happen to your finances if you suddenly got sick and could not work?  Or your employer decides to close up shop and move production overseas?  Have you taken any time to think about the future and what it might contain?  What does retirement look like?  What contingency plans do you have if your situation suddenly goes very wrong?  Bankruptcy is never a first choice, but it may be the only choice when you fail to plan.
  2. Liabilities exceed assets.  Do this simple exercise:  Write down a list of everything you owe.  Not what you have to pay every month such as utilities and food, but what you OWE and who you owe it to.  Now write down a list a everything you own.  You don’t have to get detailed, but a house, cares, bank accounts, general furniture and other possessions should be relatively easy.  Now put a value of what you might be able to get for those items if you had to suddenly sell them.  Not what you paid for them, but what you could reasonably expect to get if you threw everything in the driveway and had a tag sale.  Put aside sentimental blue, put aside the “investment” value – what is your stuff really worth?  Now subtract the total of your debt from your assets.  Is that a negative number?  For 95% of all U.S. residents, it is.  Bankruptcy might help you dump some of those debts while allowing you to keep some of those assets.  It can improve your bottom line.
  3. Expenses exceed income.  Bow lets undertake a similar exercise.  First, write down all sources of income you get in a month.  Net pay, not gross.  What is the amount you have available to use.  Now write down what it cost to live every month.  Food, lights, heat, rent/mortgage, gas for the car, insurance, etc, but not your debt payments.  Total that all up.  Now subtract that total from your total income.  Is that a negative number?  Now add up all your debt payments and subtract that from the number.  Even more negative?  Or maybe the number only goes negative when subtracting the debt payments.
  4. Savings are non-existent.  When looking at the assets/liabilities review outlined in step 2 above, was a savings account part of your asset picture?  Is there room in your budget determined in step 3 above for some savings plan?  Part of the way to avoid denying that there will ever be a problem is planning for one to happen.  Flat tires or illness can never be expected, but you can plan for them.  If you have a savings plan to cover the cost of that halt tire replacement or the unexpected doctor bill or prescription drug, your budget can absorb the unexpected expense.  Some experts recommend starting with a $1,000 savings account, others recommend saving at least three months of income for the unexpected loss of a job.  If your budget does not allow for a savings plan, then a bankruptcy may change your expenses enough to start one.
  5. Look at your history.  Once you start to change your thinking about your finances, it is sometimes hard to get away from kicking yourself.  Remember, this is not about blame.  It is about taking the blinders off and looking at reality.  You bought your home for $100,000 ten years ago and now you owe $200,000 on it.  While it is important to understand that you spent $10,000 a year more than you earned by taking money out of your home, don’t let it drag you down.  Instead look at how you are going to pay off your 30 year mortgage now that you are 40 years old before you reach 70.  Who wants to be paying a mortgage when you are retired?  Maybe you don’t care, but then it is important to look at your mortgage payment as ask yourself whether you would pay that amount in rent for that home.  Since you are never going to pay off the loan that is what you are effectively doing.  Only by looking backward can you charge the behavior you need to succeed going forward.  Bankruptcy is a way of recognizing the mistakes you have made in the past, accepting them and making the changes you need so you don’t continue repeating them.  Insanity is sometimes defined as repeating the same behavior and expecting a different result.

Believe it or not, a bankruptcy attorney can help you avoid bankruptcy, by helping you fix some mistakes that you are making.  At the very worst, you can see what the effects of a bankruptcy are and know what hurts and what helps.  Bankruptcy is not a mark of personal failure, but rather a mark of acknowledgement and a chance to fix your mistakes before they are too late.

Bankruptcy and the Unknown Asset

Bankruptcy and the Unknown Asset

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by Susanne Robicsek, North Carolina Bankruptcy Attorney

If you are filing for bankruptcy but you have an asset that you don’t have information about, can you just put down “unknown” and leave it at that?   That depends.

The short answer is that you can file your bankruptcy case without all your information, meaning it is possible to do it, however I don’t recommend it under most circumstances.

First and foremost, filing bankruptcy without having all the information you need could get you into a lot of trouble or complicate your case, depending on the circumstances, why, and how it is done.  You don’t want your case to turn into a train wreck, but sometimes you don’t have a choice.

Problems you might face may be something as simple (but humiliating) as being verbally reprimanded by a Trustee at a creditors meeting for not having the information on the bankruptcy petition, or it might involve more serious problems like motions, litigation, contempt/sanctions, and to being taken to court to have the judge determine what to do.

Unresolved issues in a bankruptcy case can drag out the bankruptcy proceedings for a long time, and tie up the debtor in court for months or even years.  The trustee can subpoena records from the people who may have information about assets of a bankruptcy estate, and they can also depose or sue to get some answers.

In some circumstances, the debtor may not only face monetary costs, loss of property, and denial of discharge – but they can also face bankruptcy crime prosecution.

Bankruptcy fraud is a federal crime, and not something to be taken lightly.

I know it is frustrating having to deal with providing all the information your attorney asks for, but I assure you that it is done for your protection.   When they choose to seek protection from creditors by using the bankruptcy laws, debtors are required to provide accurate information on the petition.

If the answer really can’t be found, then “unknown” might be the only answer you can give, but it also carries some risks.

If someone is tempted to list property as unknown because they simply don’t want to go to the trouble of finding information, they might just find themselves having to explain why they did it to a judge.

I can assure any debtor that they want to avoid potential problems in their bankruptcy case, to the extent that they can do so.  One certainly doesn’t want issues to come up that could have been avoided with a little legwork.

In the rare situations that you just can’t come up with what something is worth and there is no way to find out, the only thing to do may be to list a value or asset is as “unknown.”

That might be appropriate for something whose value can not be determined – like a one of a kind object that no one knows what it is worth, or for property that a client would have to incur high costs to appraise.

Sometimes it isn’t even an object, but is a legal claim that’s worth hasn’t been determined yet.

In those cases, the client should provide as much information as possible to the trustee and cooperate as much as they can.  They should only do this if they understand that they are handing over the property to the court for sale, no matter what the value is.  They should be prepared for the trustee to take control of the property and sell it for whatever they can get.

Listing something as unknown is not something you should so without making every attempt to get the answers first.  You should be as forthright as possible, be prepared to hand over the property to the court for liquidation to pay your debts, and it is not something you should do it without discussing with your bankruptcy lawyer.

This can also depend on the type of case that is filed.  Chapter 7 trustees take control of property that is the debtor can’t keep, and they sell it to pay towards the debts.

Chapter 13 trustees don’t ordinarily take and sell property.  In Chapter 13 bankruptcy cases, the debtor is ordinarily the one who will retain or sell the property.  That means that the debtor might be required to come up with a plan, find a value, or figure out how to sell the asset – even if it is difficult to do.

Once the case is filed, you can’t easily turn back if you find out that you just handed over something that could have paid off your debts in full.  I don’t normally recommend giving up property without having a general idea of what you are giving up but how much you owe, what protection are looking for with the bankruptcy filing, and what benefits you get are all factors to weigh.

For example maybe someone isn’t sure of a value but they are pretty sure it is worth no more than $X.    If the debt owed to creditors is many times more than what you think the property is worth, you might determine that filing makes sense whatever the property is worth since you know you are going to be discharged from your debts.

So even if you aren’t quite sure of values, disclose as much as you can, know what your goals for filing are, and know what you are giving up.  Provide as complete and accurate information as you can to increase the chance of a quick and smooth journey through bankruptcy.

Find A Good Bankruptcy Attorney in 2012

Bankruptcy, unlike other areas of the law, is an extremely personal decision that can cause a lot of stress and anxiety. For many consumers the need for bankruptcy assistance is obvious, but because of the stigma of bankruptcy and/or misinformation about the long term effects, many consumers put off finding help until there is no other alternative. So with that in mind, how does a consumer in need of bankruptcy find help?

Typically, many people turn to friends, family or coworkers for a referral when they need a Lawyer. But again, because of the personal nature of bankruptcy, many people avoid disclosing to friends and family the need for help. Traditionally, the yellow pages were the number one source for information when locating a Bankruptcy Attorney. With the increase of multimedia and internet access, finding an attorney is as easy as typing in the word ‘bankruptcy’ in your favorite search engine. Literally, thousands of resources are available at your fingertips. With all this information available, how do people decide which attorney to choose? The four key areas that a consumer should understand before they hire an attorney are as follows:

The first key area to consider is personality…Here are a few things to think about when choosing a Bankruptcy Attorney. The most important thing that a consumer should look for in a Bankruptcy Attorney, or any professional for that matter, is personality. Not, do they have a good personality, but rather, are they easy to speak with and do they speak at a level that is easy to understand. As referred to above, bankruptcy can be a very difficult decision for most consumers and can cause a lot of anxiety. Having an attorney that can make a consumer comfortable will help the process of filing for bankruptcy much less stressful.

The second key area…Look for an attorney that focuses primarily on bankruptcy. As with many aspects of the law, the practice of bankruptcy law is becoming more and more specialized. Gone are the days when an attorney could hang out a shingle and handle all types of matters. Bankruptcy does not have to be the only area that they practice in, but it should be their primary focus.

The third key area is availability and accessibility is another aspect to look at when choosing an attorney. 24/7 access is not necessary when picking an attorney, but knowing when are good times and how to contact them with a question or concern is critical to ease the anxiety of bankruptcy.

The fourth and final key area … Process is another important aspect when choosing an attorney. What is their process for dealing with new and existing bankruptcy clients? Many attorneys have a process that they follow to make sure that everything is accomplished in a given time period. Knowing their process will help the consumer understand what is happening, which again helps lower the stress. Consumers should be comfortable with the process so that the bankruptcy can go as smooth as possible.

Remember when consumers are looking for the right person to assist them, they should carefully consider who they choose. Personality, Focus, Availability and Process are four key areas that a consumer should understand before they hire an attorney.

Is Bankruptcy As Bad As It Sounds?

Bankruptcy is a personal debt solution which is often avoided because of a lack of understanding about what it actually means. We consider the implications of declaring bankruptcy and when the solution should be used.

For many people, just the thought of the word bankruptcy puts a shiver up their spine. Because of a lack of understanding about what bankruptcy actually means, they take the view that bankruptcy is something to be avoided at all costs.

The reason for this is that there are many miss-conceptions about the affects of declaring bankruptcy. However, in reality for many people it can be an extremely effective way of getting out of debt.

Will I lose my belongings if I go bankrupt?

One of the main miss-conceptions is that after declaring bankruptcy you will have to sell all of your household belongings and be left with virtually nothing.

This is simply not the case. Once you are bankrupt, you are normally allowed to keep all of your household goods. This includes all your electrical appliances, furniture and clothing.

The only time that anything in your home is at risk is if it has a particularly great value. For example if you had some extremely valuable antique furniture. However the reality for most people is that they do not have any items of extreme value like this.

Can I have a car in bankruptcy?

You can continue to own and use a car if you are bankrupt. The only issue is that generally speaking the value of the car should not be more than about £1000.

If your car is worth £1000 or less and you need it for getting to work and other reasonable family requirements, then you will normally be able to keep it.

Of course many people have cars worth more than £1000. If this is the case then generally you will have two options. You can sell the car and buy a cheaper one. The excess funds could then be used to pay for the cost of your bankruptcy or given to the official receiver.

Alternatively a third party such as a family member or friend could pay the difference between £1000 and the value of the car to the official receiver. In this way they are buying back the official receivers interest in the car on your behalf and you will then be allowed to continue to use it.

If your car or other vehicle is worth more than £1000 but is a tool of your trade. For example it is a commercial vehicle or used as a taxi then you will be able to keep it.

Will I have anything left to live on?

Another myth when thinking about bankruptcy is that the court will somehow take all of your wages and you will be left with nothing to live on.

There have been headlines over the past few years in the press suggesting that if you go bankrupt you will be left with £10 a month. This is simply untrue.

At all times when you are bankrupt you remain in control of your money. You are allowed to operate a bank account and you are responsible for maintaining all of your living expenditure payments.

You will only have to make payments towards your debts if you can afford to do so.

Once you are bankrupt, the official receiver will review your income and your reasonable living expenditures. They can only ask you to pay any extra money you have left over after your living expenses are paid for and then only for a maximum of three years.

What if I am a home owner

One of the major miss-understandings is that if you are a homeowner you will automatically lose your home. This is simply not the case. However you do need to consider the implications of bankruptcy a bit more carefully.

The key thing to think about is whether there is any equity in your property or not. If there is little or no equity in your home or it is in negative equity, then you will almost certainly be able to keep the property.

If you do have considerable equity in your property, this does present more of a problem because the official receiver is entitled to realise that money for the benefit of your creditors. However even then it may not mean that your property has to be sold.

The best thing to do if you are a homeowner is take advice from an expert before deciding to declare bankruptcy.

What about the stigma of bankruptcy?

A key concern for many people when they think about Bankruptcy is what other people will think. However the reality of bankruptcy today is that it is just as private an agreement as the alternative popular debt solution the Individual Voluntary Arrangement.

Bankruptcy is not advertised in the local newspaper. This rule changed a number of years ago. As such it is extremely unlikely that local friends or neighbours will find out you are bankrupt unless you tell them. Your employer will not be told.

Once you have declared bankruptcy your name and address are listed in the Insolvency Register. This register is publically accessible via the internet.

As such if someone wants to find out if you are bankrupt, they can do so relatively easily. However the key is that they would need to make the specific enquiry, they are unlikely to find out by accident.

Bankruptcy should not be taken lightly

Of course, declaring yourself bankrupt is not something that you should undertake lightly. The solution is by no means right for everyone and you need to fully understand the implications for your own personal situation.

However the reality is that the affects of bankruptcy have changed considerably over the last few years.

Nowadays bankruptcy should no longer be considered as a last resort solution. For many people bankruptcy is certainly the best solution to resolve their personal debt problem.

Chapter 13 Bankruptcy Payments – Lowered

When a Chapter 13 bankruptcy plan gets confirmed by the Bankruptcy Court, the monthly payments you are supposed to pay to the trustee are set by the confirmation order. But they are not always set in stone.

A Chapter 13 bankruptcy Plan can usually be modified if there is a significant and unanticipated change of circumstances, such as an unexpected reduction in income. In many cases your lawyer can make a motion to modify the confirmed plan. If you have less money to pay to the trustee, you can propose to lower the monthly payments.  You can also propose to lower the percentage being paid to the unsecured creditors, and to extend the duration of the plan to 60 months, if it not already a 60 month plan.

If you are proposing to lower your monthly payments, you will also have to submit a new budget (Schedules I & J). This amended budget must show that your current household income and expenses have decreased your disposable income to the amount you are proposing to pay in your modification.

There may be some limitation to how much you can lower your payments to the Trustee. Within the duration of the plan (which can be no more than 60 months), you must pay a certain minimum amount. You must fund in enough to pay all of the secured creditors scheduled to be paid in the plan, along with the appropriate interest.  You also must pay in full all priority debts, such as taxes or support arrears.  Also, your attorney must be paid any court approved remaining balance. The unsecured creditors also must be paid at least the percentage called for in the plan, as modified, unless you are in a jurisdiction that allows a “pot plan”.  So if your proposed modified plan does not pay enough during the plan period to cover all of that, the modification will not be approved by the Court.

Another factor that could prevent you from lowering your payments is the “liquidation test”, also called the “best interest of creditors test”. When you filed your bankruptcy petition, you listed all of your assets on Schedule A & B, with their values. You also listed which of your assets were fully or partially exempt on Schedule C. The “liquidation test” requires that the unsecured creditors receive an amount at least as much as your non-exempt assets. For instance, say at the time you filed your bankruptcy petition you had $2,000 of the value of your car over the amount you could exempt, plus some non-exempt property worth $5,000. In that case you would have to pay your unsecured creditors at least $7,000 through the life of the plan, regardless of the percentage of their total claims. So if your proposed modification pays less to the unsecured creditor than the liquidation test requires, it is likely to be denied.

Even if you find yourself between a rock (can’t afford the trustee payments) and a hard place (must pay an unaffordable amount to satisfy the plan), there may still be a way to modify your plan to decrease the monthly payments. Your modification can propose to lower payments for a while, and then increase the payments up the road, when your income goes back up. Or, you can modify to lower the payments and supplement those payments from other sources, such as future tax refunds, or bonuses, or the proceeds from the sale of some real or personal property.

You should always let your bankruptcy attorney know about changes in your circumstances, especially whenever you are concerned about your ability to continue making the payments to the trustee pursuant to your confirmed Chapter 13 bankruptcy plan.

 

Strip 2nd Mortgage In Bankruptcy?

A Chapter 7 Bankruptcy Debtor can strip a second mortgage in a Chapter 7 bankruptcy if they live in a jurisdiction under the 11th Circuit Federal Court of Appeals.  Approximately two weeks ago, the 11th Circuit issued an opinion in In Re McNeal, Case No. 11-11352 (11th Cir., May 11, 2012) wherein it held quite simply that a Chapter 7 Debtor could strip a second mortgage during the Chapter 7 case.  This is huge because everyone and I mean everyone did not believe this to be the case after the Supreme Court’s decision in the Dewsnup v. Timm case.

The McNeal case is rather surprising for several reasons.  First, the 11th Circuit is not noted as being the most Debtor friendly Circuit in the Nation; however, that seems to be changing as the Court issued several Debtor friendly decisions this year in FDCPA cases.  Second, everyone thought that this issue was dead after the Supreme Court issued the Dewsnup opinion.  As a matter of fact, many Bankruptcy Court within the 11th Circuit issued opinions stating exactly this point, including the Courts that I practice in.

Third, and this was a kind of slap in the face by the 11th Circuit, was that the opinion was based upon a 1989 case, Matter of Folendore, and the Court explained that the Dewsnup case did not abrogate or overrule their precedent in Matter of Folendore, and therefore, Matter of Folendore was still good law.

Now, the real issue will be to see where this case goes next.  Obviously, this issue is going to continue to heat up.  There are several appeals pending right now in New York, Utah and Illinois.  It may be five years before the cases get to the Supreme Court, but until then, we are going to get busy stripping liens down here.

If you think about it for a little bit of time, the implications are huge.  In a Chapter 13 bankruptcy, a debtor can strip a second mortgage lien, there is no doubt about that.  But, in order to truly get the benefits of the bankruptcy, you must wait to get your discharge, and that could take from three to five years.  Ouch.  Now, if a person is eligible, they can file a Chapter 7 bankruptcy and be completely done in 6 months.

Yes, that is what I said, completely done in 6 months.  Who wouldn’t want to take advantage of that scenario?  Chapter 7 bankruptcy is cheaper and quicker.  A debtor doesn’t have to worry about filing a plan of reorganization that will have them under scrutiny for the next 5 years, etc, etc, etc.  The benefits clearly outweigh the negatives on this issue.

 

How to Survive Bankruptcy

To some, having to declare bankruptcy seems to constitute the ultimate failure. For others, it is a brand-new start and an opportunity to manage their financial life responsibly in the future. Bankruptcy is not something to be entered into lightly, and it has major impacts on your credit score and on your ability to obtain credit in the future. It is never the end of the world, however. You can survive bankruptcy and come out on the other side more financially solid.
SEE: Should You File For Bankruptcy?
Avoiding Bankruptcy
Of course, it’s best to avoid bankruptcy in the first place, if possible. If you have a financial advisor or lawyer recommending that you file, get a second and third opinion. In many cases, there are ways to avoid bankruptcy and to work out your current debts. Some advisors are more willing than others to help you explore those options. In some situations, however, declaring bankruptcy is the only path forward, and, for these people, it is the first step to a new financial life.
Types of Bankruptcy Protection
There are two major types of personal bankruptcy filings in the United States: Chapter 7 and Chapter 13. Chapter 7 is most often used by people who have few assets and no ability to work out a repayment plan on their existing debt. Most assets are turned over and sold to repay debts, the debts are then wiped out, and the debtor emerges from the process quickly. Chapter 13 allows the debtor to keep most of his or her assets and forces lenders to work with the courts to come up with a modified repayment plan. This type of bankruptcy filing is used when the debtor owns significant assets, such as a car and a house. These filers have ongoing sources of income and need most of their existing assets to continue to earn the income. A Chapter 13 process can last for years until the debts are paid off. While both types of bankruptcies last for 10 years on your credit report, a Chapter 7 filing can have a more detrimental effect on your score.
Rebuilding Credit
After emerging from a Chapter 7 filing or during a Chapter 13, the first goal is to begin to rebuild and repair your credit. Despite all of the fantastical claims of credit repair companies, there is no quick and easy way to boost your score. The credit hit your score has taken will make you ineligible for most forms of new debt. You may be able to obtain a secured credit card. This type of card requires you to put up a cash deposit and you have access to use up to the amount of the deposit. While this doesn’t actually provide you with new credit, the benefit is that the company will report the activity on the card to the credit bureaus and you can begin to build a new credit history. It may take several years, however, before your score is high enough to apply for a car loan or mortgage. Actively monitoring your score and diligently managing your post-bankruptcy credit will slowly allow your score to rise.
Managing Your Credit Post-Bankruptcy
While filing for bankruptcy offers you a new start in your financial life, avoiding ending up in the same position in the future can take some work. Managing every dollar that comes in and goes out the door is important to ensure that you don’t drive up your debts going forward. Many people who declare bankruptcy had to do so due to factors beyond their control (irresponsible spouse, unexpected medical bills, etc.) but, for many others, debts simply crept higher and higher without notice. A simple budgeting program, such as Quicken, can help you know how much money you spend and earn every month, as well as your total assets and debts.
The Bottom Line
Filing for personal bankruptcy is the last resort for those who cannot carry their current debt load, but it often comes with further financial damage and emotional strain. Understanding the reasons for your crushing financial picture and slowly rebuilding your credit history are critical steps in surviving the process.

Looming Student Loan ‘Debt Bomb’

Student loan debt could turn into another crisis for the economy, according to the president of the National Association of Consumer Bankruptcy Attorneys.
William Brewer is putting a pessimistic spin on his group’s survey of 860 bankruptcy lawyers. “This could very well be the next debt bomb for the U.S. economy,” Brewer said in a press release (PDF). The Washington Post has the story.
Eighty-one percent of the responding lawyers reported an increase in the number of potential clients they are seeing with student loan debt, according to the press release. Forty-eight percent said the increase was “significant.”
Ninety-five percent said few student loan debtors have any chance of meeting hardship standards to discharge the obligations in bankruptcy.
Parents who co-signed for the loans are also affected, according to the lawyers group. Loans to parents for their children’s college education have increased 75 percent since the 2005-2006 academic year. On average, parents are responsible for $34,000 in student loans.
Brewer told the Post that, in the short-term, loan defaults won’t have the same ripple effect as mortgage defaults. “My concern is that the long-term effect may be even graver, because people who need student loans to try to get a higher education or retraining” will be reluctant to take on student loan debt he said.
John Rao, the group’s vice president, warned of the potential impact on parents accumulating debt in middle age. The parents will find it difficult to repay the loans as they stop working and their incomes decline, he said in the press release.

Your Friends’ Explanations of Bankruptcy

I know that this has been said on this blog numerous times about listening to what others, particularly non-attorneys, say about bankruptcy. Just because your friend got to keep his car free and clear of the creditor’s lien does not mean that youwill. Often, there is a substantial amount of misunderstanding and just plain wrong information. The same can be said for information about bankruptcy over the internet (with the exception of Bankruptcy Law Network of course).
Just recently, I had a client call my office wondering if he might be convert his case from a chapter 13 to a chapter 7. His friend had converted his case and was able to get all his unsecured debt discharged. The client wondered why he couln’t do the same thing? What the friend and the client have failed to realize is that the friend’s situation is dramatically different from the client’s situation. In the friend’s situation, the only debts remaining were unsecured debts. In the client’s case, a second mortgage had been “stripped off” and a conversion to a chapter 7 would torpedo the “strip-off” of his second mortgage (meaning the mortgage remains in place).
As any lawyer will tell you, the outcome of any case depends on the particular facts in that particular case. It is very rare that two cases are exactly alike. It takes a knowledgeable and experienced attorney to help guide you through the maze of your particular case. You don’t want to be led into a dead-end by following advice that is wrong for your particular situation.
The same can be said for the huge amount amount of information available over the internet. While having a lot of information available is generally a good thing, you also need a certain knowledge base and experience to be able to sort good information from the bad or even just to know which information is applicable to your situation. Many times, clients will bring up a question involving bankruptcy based on what they read on the internet. Oftentimes, I will have to debunk what a client has read because it just does not apply to his situation.
Your best investment in navigating the bankruptcy maze is a skilled, experienced bankruptcy attorney.