California Bankruptcy Attorney Blog

Part of our job as Riverside personal bankruptcy attorneys is to explain the ripple effects that our services can provide. At this time of year in particular, that means explaining the tax implications of a bankruptcy, loan modification or other major financial move. As a New York Times blog post set forth Jan. 29, taxes may look substantially different this year for people who underwent major financial changes in 2009. For many of our clients, this includes cashing out investments, having debt forgiven or losing a job.

People who settled debt without bankruptcy, were foreclosed on or had principal forgiven on a loan may be surprised to learn that the forgiven debt is taxable. That's because the IRS counts it as "income," even though a lack of income is likely what led to the debt forgiveness in the first place. There are several exceptions to this rule. Debts discharged in bankruptcy don't count as income. Thanks to a 2007 law, the federal government will also ignore forgiven debt that comes from a foreclosure or forgiven mortgage on your primary home, as long as it doesn't exceed $1 million for individuals and $2 million for married couples. However, this only applies in specific circumstances, so you should talk to a tax professional before making decisions. Finally, you can avoid paying taxes on forgiven debt if you can convince the IRS that you're insolvent, which means your debts exceed your assets.

Unfortunately, many of our clients who get into financial trouble make financial moves that will also complicate their taxes. Cashing out retirement savings, for example, will mean paying income tax on what you took out as well as a 10% penalty. Selling investments can qualify you for a capital gains tax. And unemployment insurance payments are taxable after the first $2,400. The plus side is that if you lost income in 2009, you will drop into a lower tax bracket. And very high medical expenses, which bring too many of our clients into our office, are tax-deductible under certain circumstances.

Our Lakewood consumer bankruptcy attorneys can't overemphasize the importance of understanding these rules before you file your taxes. Innocent mistakes may not be harshly punished, but by failing to take the steps needed to show you're insolvent, for example, you could be locked into higher taxes than you need to pay. Worse, you could end up in a tax debt situation that you'll need professional help to change. To make matters worse, recent debt to the IRS cannot be discharged in bankruptcy. When working with clients, we provide individual counseling about tax implications of bankruptcy and other financial moves. We also counsel clients on related matters, like discharging difficult debts like student loans or unpaid child support.

Continue reading "Financially Distressed and Bankrupt People Should Plan Carefully for Taxes" »

As Upland consumer bankruptcy lawyers, we were pleased to see a recent article on the importance of timing a bankruptcy. The Kalamazoo Gazette reported Jan. 16 that experts, including individual bankruptcy attorneys like us, suggest that people headed for bankruptcy consider filing early, before their financial problems are overwhelming. This is how most people handle it, the article said, because most people do everything they can to avoid a bankruptcy in the first place. But if the bankruptcy seems inevitable, personal bankruptcy lawyers say it's better to protect your assets by taking action early.

According to the article, most people drain their savings, cash out their 401ks and IRAs and sell possessions to pay debts after they get into financial trouble. This is understandable, because bankruptcy is a major financial upheaval that stays on the filer's credit report for ten years. During that time, it will be harder for the filer to rent an apartment, get a loan or perform many other basic acts involving credit. Many people try to avoid bankruptcy because they believe it will leave them "nude," one attorney said, meaning without assets. But in reality, experts said bankruptcy can often preserve financial assets while providing a chance to start over. For that reason, attorneys said they wished bankruptcy filers would come to them months earlier, closer to when their financial troubles started.

Our Garden Grove personal bankruptcy attorneys strongly agree. The article doesn't make this explicit, but in many cases, consumers lose their assets needlessly while trying to avoid a bankruptcy. It's better to avoid bankruptcy if possible, of course, but some filers have debts so high that there's no other realistic way to handle the situation. When this is the case, we encourage potential clients not to sell off their assets or liquidate their savings before they speak to us. In a bankruptcy, many of the assets that people typically liquidate are protected, which means they will not be sold to creditors. These include retirement savings, a certain amount of home equity, personal possessions without much value and heirloom jewelry. By declaring bankruptcy early, filers can start over with these assets in place, providing a cushion they'll need as they begin to rebuild their finances.

Continue reading "Experts Say Declaring a Bankruptcy Earlier May Help Debtors Rebound Later" »

Because we are Corona consumer bankruptcy lawyers, we spend a lot of time talking to our clients about the effects of bankruptcy and other major financial decisions on their credit scores. Many of our clients have misconceptions about bankruptcy and credit that can keep them from addressing their financial problems until after a lot of expense and emotional turmoil. That's why we were pleased to spot a Jan. 28 blog post on WalletPop.com interviewing the co-author of a book on living with bad credit. Geoff Williams, who authored Living Well With Bad Credit along with Chris Balish, told his own story about declaring bankruptcy and addressed some of the ways that people end up with bad credit in the first place.

For some people, Williams said, bad credit or a bankruptcy is truly out of their control because it's triggered by a major financial disaster like a serious disease or a job loss. But for many others, he said, one mistake snowballs into several more mistakes made to deal with the first one. For example, he said, buying a car that's too expensive for your budget could lead to higher credit card debt or suspending contributions to a savings account. Signs that your credit is slipping can be difficult to spot, he said, and emotionally difficult to acknowledge. Williams said that while credit matters, bad credit isn't the ruinous, financially crippling situation many people fear. In fact, he said, filing for bankruptcy "was one of the smartest financial decisions I've ever made." Even though it hurt his credit, it helped him get control of his finances and resume saving for things like retirement and his daughters' college tuition.

As San Bernardino individual bankruptcy attorneys, we believe this is true for many individuals who are backed into a financial corner. Some people regard bankruptcy as a failure or a sign that they can't handle their own finances. But in the right situation, bankruptcy can be a smart choice that gives you back the power to control your own future. When you literally cannot pay back all that you owe and that isn't likely to change, trying to pay it off just delays the inevitable. Draining retirement accounts or selling off assets to pay debts are common strategies, but they frequently aren't necessary to declare a bankruptcy, don't solve the problem and leave people in worse financial positions than before. A bankruptcy isn't anyone's first choice, but it can be the first step toward rebuilding savings, credit and a healthy financial life.

Continue reading "Author Discusses Myths About Bankruptcy and Its Effect on Credit" »

As Riverside unfair debt collection attorneys, we were interested to read about the fallout from the bankruptcy of one of the largest debt collection law firms in the United States. As the Baltimore Sun reported Jan. 16, Maryland-based Mann Bracken was ordered by state regulators to cease operations earlier that week. The order was not entirely necessary; the law firm was already in financial trouble because an affiliated company that handles debt collection, Axiant, had filed for bankruptcy in November. The arrangement tied Mann Bracken's fortunes to an arbitration company called the National Arbitration Forum. That company was sued for consumer fraud by Minnesota's attorney general in 2009.

In fact, the Sun reported that the law firm's financial trouble may have started with the Minnesota lawsuit. The National Arbitration Forum was accused of conflicts of interest that biased its judgments in favor of the credit card companies that paid it. As part of the settlement, it agreed to stop handling consumer arbitrations. Axiant filed for bankruptcy four months later, and Mann Bracken blamed its financial troubles on that move. The firm was facing separate lawsuits and regulatory action accusing it of violating the Fair Debt Collection Practices Act and similar state laws. The firm's closure may dismiss those lawsuits, but it will also end tends of thousands of lawsuits filed by Mann Bracken against consumers. Experts told the newspaper that this was a victory for consumers, who may otherwise have ended up with legal judgments against them before they realized they had been sued.

Our Costa Mesa unfair debt collection lawyers don't exactly enjoy seeing another law firm fail -- but in this case, it may benefit consumers. As the Sun noted, Mann Bracken was under investigation, the target of multiple lawsuits and had a Better Business Bureau rating of F because of numerous accusations of unfair business practices. Closing the business will give valuable time to people who were being sued by the company. In any lawsuit, the person suing must notify the defendant. But shady debt collectors frequently fail to give notice, or find ways to ensure that notice isn't served quickly, because they will win automatically if the consumer doesn't appear and fight the case. This creates a default judgment that the unscrupulous debt collector may use to garnish wages or take property. Many victims don't realize this happened until it's too late to fight back.

Continue reading "Thousands of Debt Collection Lawsuits Dismissed by Collection Agency Bankruptcy" »

As Chino bankruptcy attorneys, we already knew that foreclosure and bankruptcy tend to go together -- one tends to cause the other. The Wall Street Journal illustrated that correlation neatly in a Jan. 7 article juxtaposing personal bankruptcies in the "sun belt" with high foreclosures in those states. The national average increase in bankruptcies last year was 32%, the article said -- but above 50% in the Western states of Arizona, Nevada, California. Not surprisingly, these were also the states with some of the highest rates of foreclosure. Consumer bankruptcy lawyers told the newspaper that mortgage debt helped push some people into bankruptcy by cutting off home equity loans as a source of credit.

The highest bankruptcy rates don't correlate exactly with the highest foreclosure rates. For example, two of the most bankrupt states identified by the Journal were Utah (57% growth in individual bankruptcies) and Wyoming (58.3% growth), neither of which is consistently in the list of most-foreclosed states. And Florida, a heavily foreclosed state, saw its bankruptcies grow by 44.8%, compared to 79.6% in the national record-holder, Arizona. But in the West, states with the most personal bankruptcies tended to be the states that saw housing prices rise and fall to the greatest extremes -- Arizona, Nevada and California. One consumer bankruptcy attorney told the newspaper that his clients were almost always renters a few years ago. But now that prices and equity are falling, he said, more homeowners are forced to consider bankruptcy.

We're sorry to say that our Redlands bankruptcy lawyers see this trend ourselves. As the article notes, the housing crisis can cause bankruptcies by taking away financial tools like refinancing, selling the home or a home equity line of credit. Some homeowners may also file for bankruptcy as a last-ditch attempt to keep their homes out of foreclosure, after exhausting all of their other financial resources. But the reverse is also true: Financial problems that lead to bankruptcy can cause foreclosure even if those problems have nothing to do with the mortgage loan. This might be the case for homeowners who lose a job and can't find another quickly, or those who rack up high medical bills and exhaust their financial resources to pay them.

Continue reading "Western States With Highest Foreclosure Rates Also Had High Bankruptcy Rates" »

As Rancho Cucamonga loan modification lawyers, we have long supported laws that would allow bankruptcy judges to "cram down," or lower, principal owed on a primary home during a bankruptcy. In a Jan. 5 editorial, the New York Times reiterated its agreement. The editorial said the housing market may be weakening again, after some signs of recovery. It also repeated predictions from many housing experts who see the market worsening or staying flat thanks to predicted interest rate increases, high unemployment and the end of the homebuyer tax credit. Under these circumstances, the editorial said the Obama administration should put new emphasis on mortgage cramdowns, which it said was the best way to modify an underwater loan.

In a cramdown, the principal owed on the loan is simply reduced. This means an immediate loss for the lender, but it also reduces defaults and foreclosures by restoring equity and lowering mortgage payments. Last year, Congress considered allowing bankruptcy judges to cram down principal on a primary home loan as part of a Chapter 13 bankruptcy. Despite the fact that judges may already cram down principal on any other loan, the measure died because of fierce opposition from the financial industry. The Times did not call for more efforts to pass this bill, but suggested that the White House could simply change its policies to encourage voluntary cramdowns through the Home Affordable Modification Program.

Our Whittier loan modification attorneys don't believe this would be enough to make a difference on its own. As the article itself notes, HAMP has been largely unsuccessful, with borrowers complaining about bureaucratic delays, seeming incompetence from lenders and mistake that threaten their homes. We believe this is partly because the program is entirely voluntary, with public shaming the only tool available for the Treasury Department to compel compliance. Lenders who believe they will make more money by foreclosing have no real incentive to grant loan modifications, although they do have an incentive to look like they will. More toothless policies from the federal government, however well-intentioned, are unlikely to change the behavior of lenders who fought hard against bankruptcy cramdown legislation.

Continue reading "New York Times Again Calls for Mortgage Cramdowns in Consumer Bankruptcies" »

Thanks to personal experience and industry reports, our San Bernardino personal bankruptcy lawyers knew that 2009 was likely to offer a flood of new bankruptcies. According to a Jan. 6 article from the Wall Street Journal, individual bankruptcies increased by 32% last year over 2008, which means 1.41 million bankruptcies. This is the highest rate since 2005, when bankruptcies spiked just before changes to the law. The article attributed the rise to the continuing recession, high unemployment rates and the housing crisis, all of which are putting a squeeze on consumers. In fact, the article said, bankruptcy attorneys are seeing an increase in filings from people with six-figure salaries and high levels of education, many of whom were doing well financially just a few years ago.

The increase in individual bankruptcies is particularly noteworthy because it includes a large proportion of Chapter 7, or liquidation, bankruptcies. That's despite the 2005 bankruptcy reform law, which was specifically intended to cut down on Chapter 7 filings by forcing more filers into Chapter 13 reorganization bankruptcies. In Chapter 7, filers pay off some debts and the rest are forgiven, but in Chapter 13, filers must make a repayment plan and repay most or all of their debts. The reform laws included a "means test" provision intended to determine whether the filer could repay the debt -- so the rise in Chapter 7 bankruptcies means more filers are failing that test. A Columbia University law professor quoted in the article said the numbers suggest that the law is ineffective and likely was not well written.

As Orange consumer bankruptcy attorneys, we agree, although we don't enjoy being right about this. The rise in Chapter 7 bankruptcies means more and more people are dealing with debt that's disproportionate to their incomes. In this economy, we suspect that unemployment and failures of small businesses are major factors. Just as the article says, we have seen many bankruptcy clients from middle-class or upper-class backgrounds, who never believed they would end up in our office. The vast majority of these people did not spend too much money or make unwise investments. But like many Americans, their income has dramatically changed over the past 24 months or so, and they sometimes turned to credit cards, home-equity loans or other forms of debt to make it up.

Continue reading "Consumer Bankruptcy Filings Reach Post-Reform Record High in 2009" »

As Fontana debt settlement lawyers, we know that the new year typically brings in a few people who have resolved to get their financial lives under control. Fortunately for those with credit card debt, a Dec. 30 article in the Chicago Tribune suggests that this may be an excellent time to settle that debt. As the economy goes downhill and unemployment rises, many people are having a hard time making their credit card payments. That means credit card companies are seeing more and more defaults -- in fact, the article says defaults are tracking the unemployment rate. And that, in turn, means credit card companies are hurting and eager to negotiate settlements with people who can no longer handle their debt -- even if that means the company gets less than the full amount.

The article suggests several ways to approach settling your credit card debt. The most direct way is simply to call the credit card company, explain your situation and request a reduction in your debt in exchange for paying it off quickly. However, negotiation is not for everyone, and the stress of debt can make some people shy. That's why the article also suggests a nonprofit credit counseling agency. These agencies may charge a fee, but they also do the negotiation for you, help you set up a payment plan and provide education on how to avoid overwhelming debt in the future. A third alternative is a debt settlement company, which the article recommended with reservations because they are for-profit companies that may be dishonest and will likely harm your credit. A debt settlement company uses missed payments as leverage to negotiate a settlement for a reduced amount.

We offer a fourth option: representation from a licensed Orange County debt settlement attorney. Like credit counselors, our law firm negotiates directly with creditors to settle debts, generally for less than the full amount owed. We can do this because credit card companies know that they could get nothing at all if the client is forced to declare individual bankruptcy -- and when bankruptcy lawyers are on the job, they get nervous. Once the debt is settled, we have partners who help follow up to ensure that official records reflect the settlement and that old debt won't come back to haunt you. And unlike some debt settlement firms, we believe it's part of our job to explain the financial implications of the actions we take on clients' behalf, such as taxes owed on forgiven debt.

Continue reading "Bad Economy Means Settling Credit Card Debt May Be Easier Than Ever" »

As Corona bankruptcy attorneys, we see clients every day whose financial problems are caused or exacerbated by problems making mortgage payments on time. The two issues are closely intertwined, as this Dec. 16 article from business publication Finance & Commerce shows. The article says bankruptcy lawyers like us have become frustrated by the federal Home Affordable Modification Program, but not just because mortgage servicers and lenders have dragged their feet on helping our clients. Attorneys in the article were also disappointed in HAMP because its rules allow bankruptcies to complicate loan modifications, and vice versa, causing painful delays for clients.

Under HAMP, mortgage lenders may not deny modifications to borrowers who have already completed a bankruptcy. However, it says nothing about how lenders may treat borrowers who are already in bankruptcy, or file for one during the loan modification process. That means some lenders are asking borrowers to sign a waiver of their right to file for bankruptcy, the article says, as a condition of requesting a loan modification. This can create sticky situations for borrowers, bankruptcy attorneys said. If a borrower has aggressive creditors other than the mortgage lender, it's impractical to wait. Yet mortgage lenders routinely ask borrowers to wait months and months for an answer or a permanent loan workout, lawyers complained. As a result, the two actions must be timed carefully. Some attorneys are also asking bankruptcy judges to make loan modifications as part of Chapter 13 bankruptcy plans.

Our La Habra bankruptcy lawyers like this strategy -- but it depends on the agreement of not only the judge, but also the mortgage lender. And as our loan modification clients' experience shows, lenders have little incentive to agree to a modification right now. People considering both a modification and a bankruptcy filing should absolutely talk with an attorney before taking any action. Those who qualify for Chapter 7 bankruptcies may be able to complete them in a few months and then pursue a modification, but this is a minority of bankruptcy filers. The majority may simply have to fight their lenders for a reasonably quick loan modification decision. In some cases, we have been able to force the lender's hand by filing a lawsuit -- or simply by joining the case, which puts the lender on notice that a lawsuit could follow.

Continue reading "Attorneys Say Loan Modification Rules and Bankruptcy Complicate One Another" »

Our San Bernardino bankruptcy attorneys were delighted when the U.S. Supreme Court took up a case seeking to end restrictions on certain advice bankruptcy lawyers may give to their clients. Now, the New York Times reported Dec. 2, the court has heard oral arguments in the case. Milavetz, Gallop & Milavetz v. United States, No. 08-1119, pits a Minnesota law firm against multiple provisions of the federal bankruptcy reform laws of 2005. Chief among the firm's complaints was the new prohibition for lawyers against advising clients to take on more debt just before filing for bankruptcy. This is a violation of the First Amendment's free-speech guarantee, the Milavetz firm argued, and can contradict state laws requiring lawyers to give the best advice possible. The firm also objected to a provision requiring bankruptcy law firms to advertise with a statement that "we are a debt relief agency."

However, the focus of the article was clearly on the restriction on lawyers' advice. Justice Antonin Scalia said that it was a "stupid law," but said the Constitution does not prohibit stupid laws. By contrast, several other justices seemed open to the law firm's argument that the provision violated bankruptcy lawyers' free speech rights. The government's attorney, Assistant Solicitor General William M. Jay, argued that the prohibition applied only to situations where a lawyer advises a client to abuse the bankruptcy system or defraud creditors, both of which are of course illegal. Chief Justice John Roberts told Jay that the language of the law left this ambiguous, forcing attorneys to stop and consider whether they could be prosecuted even for legal, ethical and correct advice. Justice Ruth Bader Ginsberg suggested that the restriction would stop an attorney from suggesting more debt even when it makes sense, such as when the client has just been diagnosed with an expensive-to-treat medical problem like cancer.

This hypothetical by Ginsberg is just one reason why our Fullerton personal bankruptcy lawyers would like the court to overturn this provision. In addition to impermissibly interfering with the attorney-client relationship, the law actually restricts us from giving clients the best possible advice. For a client like the one Ginsberg suggested, it makes much more sense to delay bankruptcy filing until after treatment, because individuals and married couples may file for bankruptcy only once every seven years. We may also advise our clients to take on more debt for practical reasons, such as to refinance a mortgage for a better interest rate, or borrow to pay for required credit counseling. All of this advice is perfectly legal under state law, ethical and sensible -- but under the bankruptcy reform law, it is illegal. And because state ethics laws already forbid attorneys from advising clients to break the law, we believe the reform law, as interpreted by the government, is not even necessary.

Continue reading "High Court Hears Challenge to Restrictions on Bankruptcy Lawyers' Advice to Clients" »

The U.S. Supreme Court recently took up a question that's directly relevant to our practice as Irvine personal bankruptcy attorneys: How easy should it be to have student loan debt forgiven in bankruptcy? According to a Dec. 1 article from USA Today, the high court started hearing arguments that day in a dispute between a lender and a former student who had part of his debt wiped out in bankruptcy. Francisco Espinosa worked out a plan in 1992 to repay the principal on his student loans as part of a Chapter 13 bankruptcy. A federal bankruptcy judge agreed to the plan and forgave the remaining $4,000 in interest. But his lender, United Student Aid, later objected, arguing that the plan as illegal without a showing of "undue hardship" to Espinosa.

Under current laws, student loans cannot be forgiven in bankruptcy unless repayment would be an undue hardship to the debtor. Proving undue hardship usually requires a special hearing. However, bankruptcy courts are free to restructure debt to make it easier to pay. Espinosa's repayment plan took a middle ground by repaying principal but not interest. United was notified of that plan in 1992, when Espinosa's attorney designed it, and again six months later when the bankruptcy court approved it. Espinosa successfully completed the plan; the debt was declared paid in full in 1997. However, in 1999, United began demanding interest. In 2003, it filed a claim alleging that Espinosa's plan was void because he had never proven undue hardship. A federal appeals court disagreed, and the Supreme Court case followed.

The newspaper said the justices seemed inclined to find a balance between discharging all loans and requiring hearings even when the creditor does not object. As Riverside individual bankruptcy lawyers, we hope the justices find that balance in a way that eases the burden of student loan debt on ordinary Americans. A college education is almost mandatory for people who want to be able to earn a good living -- but the price has gone up faster than inflation. As a result, millions of young people are graduating with an average of around $20,000 in debt, and older workers are delaying homeownership and even marriage because of their debt. Particularly now that the economy is bad, it's difficult for people with less experience, or skills not in demand, to make the kind of money necessary to keep up with that debt. If one or two more negative financial events tip these students into bankruptcy, judges should have the discretion to reduce burdensome loans without endless hearings.

Continue reading "Supreme Court Considers Easing Rules on When Bankruptcy Can Erase Student Loans " »

As Orange consumer bankruptcy attorneys, we were pleased to see that the press has taken note of the growing diversity of our personal bankruptcy clients. USA Today reported Nov. 24 that individual bankruptcies are now largely filed by middle-class people -- and have been since before the current economic downturn. In support, the article cited a new study by scholars at Ohio University and Harvard Law School, entitled "The Vulnerable Middle Class: Bankruptcy and Class Status," which will be released as a book in 2010. That study found that more than 100,000 middle-class families filed for bankruptcy every month as of 2007, and that those filers were in worse shape than bankruptcy filers in 2001.

The study disputed the widely held notion that a college education and homeownership are enough to guarantee financial security. From 1991 to 2007, the proportion of bankruptcy filers with at least some college increased from 46.5% to 58.9%. Meanwhile, home equity, considered a fallback resource, simply increased mortgage payments for homeowners who tried to use lines of credit to pay off medical, credit card or other debts. Rising unemployment and unwise spending habits have also contributed to bankruptcies, the article noted. The result can be emotionally devastating for people who thought middle-class status was enough to keep them out of bankruptcy.

That was true for Staci Schubert, 40, of Costa Mesa. Schubert has been a graphic designer, sales executive and, since 2003, the owner of her own handbag and accessory design business. Much of her savings went to launch the business, which was a problem when sales slowed in 2007. Schubert, a single mom of a two-year-old son, racked up $65,000 in credit card debt and began looking for a job, but only found freelance design work. In early 2008, she filed for a California Chapter 7 bankruptcy -- something she never thought she'd do when she was making six figures annually.

Our San Bernardino County bankruptcy lawyers have seen more and more people like Schubert in the past few years. As the article notes, bankruptcy filing can be emotionally difficult for them, in part because they thought they were doing everything "right." In fact, some of our clients have done a good job of managing their money, but were wiped out by medical bills or other unsecured debts that quickly spiraled out of control. When they come to see us, some of these clients feel ashamed or guilty -- even though filing for bankruptcy can actually improve their financial situations. As individual bankruptcy attorneys, we hope that articles like this one can help remove the stigma on filing for bankruptcy and help guide people toward the financial moves that can help them get back on their feet.

Continue reading "Report Shows That Most Personal Bankruptcy Filers Are Now Middle-Class" »

As Corona loan modification lawyers, we have long believed that the deck is stacked against homeowners when it comes to foreclosure proceedings. That's why we were pleased to read that some judges and borrowers are starting to crack down. The New York Times reported Oct. 24 that in at least a handful of recent cases, judges have refused outright to enforce debts or allow foreclosures when the lender cannot produce the title. This is a marked contrast to the typical procedure before the housing downturn, when judges were likely to rubber-stamp foreclosures and debts. The article suggested reasons including the greater volume of foreclosures, the lax lending standards behind many foreclosures and the trend toward securitizing mortgages, which can make paperwork hard to find and ownership hard to establish.

The article called out a consumer bankruptcy case involving a homeowner from White Plains, NY. The unnamed woman bought her home in 2001 and refinanced 4 1/2 years later, but then had trouble making her payments. Her attorney filed for bankruptcy on her behalf, hoping to convince lender PHH Mortgage to allow a loan modification. PHH was not the original lender for the purchase or refinance, but filed a claim with the bankruptcy court for debt the woman allegedly owed. The attorney said PHH was dragging its feet on the case, so he asked the court to force PHH to prove it owned the debt. The ensuing paperwork not only did not prove ownership, but exposed PHH for overcharging the homeowner for foreclosure fees and interest. In response, the bankruptcy judge simply canceled all of the woman's mortgage debt, saying he had serious doubts about who owned it.

This is not the first "show me the title" case our Covina loan modification attorneys have encountered, but it's pleasing to know that judges are willing to crack down on sloppy paperwork when the circumstances require it. Foreclosures and bankruptcies are about more than just getting paperwork in order; they affect the lives of the people behind them in real and lasting ways. When someone is at risk of losing her home or being tied down for years by hundreds of thousands in debt, she deserves to have the creditor held to higher standards. And as the article notes, mortgage lenders and other institutions have, to some extent, invited this kind of trouble by failing to verify whether borrowers could reasonably pay their loans, then habitually failing to properly track and document ownership of securitized mortgages.

Continue reading "Borrowers and Judges Increasingly Demand to See Title Before Allowing Foreclosures" »

As Long Beach consumer bankruptcy attorneys, we have seen problems with the 2005 bankruptcy reform bill since before it passed. That's why we were pleased to see an article from the Providence Journal Oct. 20 about a proposed federal bill that would reverse some of its most damaging effects for people who are driven bankrupt by medical debt. Sen. Sheldon Whitehouse, D-RI, has proposed a Medical Bankruptcy Fairness Act that would allow debtors to keep at least $250,000 worth of equity in their homes; waive credit counseling and the "means test" that limits who may file for Chapter 7; and allow debtors to delay paying attorney fees until after they complete the bankruptcy. Studies have found that medical debt is primarily responsible for 60% of all individual bankruptcies in the United States.

In support of the bill, a subcommittee of the Senate Judiciary Committee heard testimony from a Rhode Island couple who went bankrupt after their son was hospitalized for 13 months and underwent three surgeries for his cystic fibrosis. Kerry and Patrick Burns had health insurance, but it didn't cover all the needs of their son, Finnegan, who died this year at the age of 4 1/2. They also lost income when they took leave from their jobs to be with him; Kerry Burns eventually lost her job as a social worker. They drained their retirement accounts, sold belongings and eventually fell into default on their mortgage, enduring up to 60 calls a day from creditors. Kerry Burns told the senators that she found the required credit counseling portion of the bankruptcy process "demeaning and demoralizing," and that she had to borrow the money to file for bankruptcy.

Our San Bernardino individual bankruptcy lawyers support this effort to make bankruptcy a little easier on people who are driven there by medical problems beyond their control. Ideally, we would prefer a bill easing these requirements for all filers, particularly since research shows that the widespread abuses the reforms were meant to curb never existed in the first place. But as Elizabeth Edwards, another witness at the hearing, said, patronizing questions about managing money better are especially inappropriate for families driven into bankruptcy by a serious illness. Nobody chooses to get sick, lose their job because of illness or have essential health care coverage denied by a health insurance company.

Continue reading "Senate Considers Bill to Change Bankruptcy Process for People With Medical Debt" »

As Ontario bankruptcy attorneys, we are following with great interest proposed new legislation that would change the way student loans are treated in a personal bankruptcy. As Inside Higher Ed noted Sept. 24, a House subcommittee recently heard testimony on the issue of student loan forgiveness during bankruptcy. Under current law, no student loans can be discharged in bankruptcy, including loans from private lenders as well as government-backed loans. Rep. Steve Cohen, D-Tenn. and the chair of the subcommittee, said he will propose legislation that would revoke that privilege for private lenders, making their debt dischargeable just like credit cards, car loans and most other forms of loan debt.

Federal student loans have not been dischargeable in bankruptcy since 1978, but private student loans were dischargeable until 2005, when a provision giving them special treatment was part of that year's bankruptcy reform bill. (Bankruptcy courts may make an exception in cases of "undue hardship.") Critics of the change say this is unfair to consumers because private loans come with none of the consumer-friendly features of federal loans, such as low, fixed interest rates and flexible repayment. It also gives lenders who deal in student loans special treatment that their colleagues who make other types of loans don't get. According to the article, the rising cost of tuition and the $12,500 limit on government loans drove 14% of students to take out private loans in the 2007-2008 school year, up from just 4% in 2003-2004.

As Temple City bankruptcy lawyers, we would like to add that the bad economy is likely to worsen this problem. With fewer jobs available and experienced workers competing for entry-level jobs, many graduates with large amounts of debt have already had trouble paying their loans, or expect to have trouble soon. In fact, surveys have shown that heavy debt loans actually discourage younger adults from buying homes and having children. It's bad enough that these market forces could drive young people into bankruptcy -- and it's worse that the bankruptcy courts can't help them solve the problem by forgiving debt they truly cannot pay. We strongly support legislation to take away the unfair advantage that student lenders currently have in consumer bankruptcies.

Continue reading "Congress Considers Bankruptcy Law Change to Allow Forgiveness of Private Student Loans" »