This situation does not sit well with one policy analyst who has proposed allowing private student loans to be dischargeable in personal bankruptcy. Unlike federal loans, which are backed by the federal government, private student loans do not have the protections of federal loans, and they are typically more expensive.
]]> There are a number of advantages to allowing private student loans to be dischargeable. First, it would encourage people to spend money on education. Currently, other forms of debt are dischargeable, but debts incurred for education, which is thought to be a worthwhile investment, generally are not.Another advantage is that allowing private student loans to be dischargeable would protect students from predatory lenders. Right now, private lenders need not take into account whether a student is likely to be able to repay loans before handing over money. By allowing such debts to be dischargeable, lenders would be motivated to do due diligence.
Another very important advantage is that discharge of the debt would be a lifeline to those facing serious financial challenges. By being freed of such a crushing debt burden, the borrower would be able to start over and contribute to the recovering economy. Also, allowing private student loans to be dischargeable in bankruptcy also would not cost the government anything.
Despite these advantages, this proposal has attracted some criticism. One congressman has said that students who take out loans to improve their earning potential should accept responsibility for their decision.
Although student loans are not usually dischargeable in bankruptcy, those struggling with unexpected life changes should be aware that personal bankruptcy protection is still an option to consider, especially for those seeking to stop foreclosure and get relief from other kinds of debts.
Source: U.S. News & World Report, "Private loans without bankruptcy option are the real problem," Amy Laitinen, April 27, 2012
]]>The purpose of the Homeowners Due Process Bill is to curb certain business practices by financial institutions. Mortgage servicers would be required to set up a single point of contact with a borrower when a mortgage payment is 60 or more days overdue, when the borrower is requesting a loan modification, or when the servicer records a notice of default.
]]> At a news conference with state Sen. Mark DeSaulnier, who is a co-sponsor, a California homeowner described the confusion that reigns when a homeowner tries to negotiate a loan modification with the bank. The lack of a single contact means that a homeowner gets different answers from different bank representatives. The homeowner, who had been in foreclosure himself and was successful in his effort to modify his home loan, described the physical and emotional toll the process took on himself and his young son.Another provision of the bill would end the practice of robosigning, where bank employees sign foreclosure papers -- sometimes thousands at a time -- without verifying the information contained in the paperwork. DeSaulnier noted that the bill would require lenders to be responsible -- just as homeowners are expected to be.
The senator noted at the press conference that more than 180,000 families in California are currently in the foreclosure process. Unfortunately, at present, hundreds of thousands of homeowners experiencing financial challenges have reported difficulties in working with their lenders to modify their mortgages.
Source: Contra Costa Times, "Antioch community members join DeSaulnier in support of homeowner protection," Paul Burgarino, April 17, 2012
]]>Consumers who are considering filing for Chapter 13 bankruptcy will want to be mindful of some restrictions and requirements. Student loans, child support arrearages and tax liens usually are not dischargeable in bankruptcy. Also, anyone who files for bankruptcy is required to disclose pending claims or non-liquidated claims and must denote any potential legal actions.
]]> The requirement to denote potential legal action is illustrated in the case of a Chapter 13 bankruptcy debtor who also had filed an unrelated lawsuit against his former employer alleging employment discrimination on the basis of race under federal equal employment opportunity laws. The debtor had neglected to denote this employment discrimination claim with the bankruptcy court.The former employer argued to the court hearing the discrimination case that a process called judicial estoppel should prevent the debtor from pursuing the claim against it for this failure to disclose. Judicial estoppel prevents a plaintiff from engaging in legal activity that conflicts with other legal proceedings.
This process is meant to prevent bankruptcy judgments from being made on the basis of fraud. The court found for the employer, preventing the debtor from pursuing the discrimination case, and the decision was upheld on appeal.
This unfortunate yet complex legal situation illustrates the importance of consulting with an experienced bankruptcy attorney regarding the Bankruptcy Code and its various provisions. An attorney can help debtors ensure that they are able to get the debt relief and protection they need without jeopardizing any other legal claims they may have in any other lawsuits.
Source: Human Resources Journal, "Lawsuit Against Tyson Foods Averted by Plaintiff's Bankruptcy Claim," April 19, 2012
]]>Sapp, who appeared in the Super Bowl in 2003 with the Tampa Bay Buccaneers, played for 13 seasons in the NFL. After retiring, he appeared on the hit TV show "Dancing with the Stars" and has worked as a pro football commentator.
]]> Sapp's story shows that anyone, even big-ticket professional athletes, can find themselves in an overwhelming debt situation. People who find themselves with mounting personal debt should be aware that Chapter 7 bankruptcy may be an option for them.Chapter 7 bankruptcy petition can provide the groundwork for a total liquidation of a person's outstanding unsecured debt. Eligible debts, including credit card debt, can be forgiven if the person follows the rules in the bankruptcy code and the petitions for a discharge of debt.
Many people seeking debt relief and a fresh start believe that they are not eligible for Chapter 7 bankruptcy protection. This is frequently not the case, and a skilled attorney can determine the best options available to an individual.
Filing for bankruptcy is one of the most effective ways for homeowners facing foreclosure to stay in their homes. As soon as a bankruptcy petition is filed, the court grants an automatic stay preventing creditors from garnishing wages, seizing property or engaging in harassment. An experienced attorney can explain how bankruptcy works and can make sure the proper paperwork is filed at the right time.
Source: Los Angeles Times, "Warren Sapp files for bankruptcy protection in Florida," Dan Loumena, April 7, 2012
]]>One of these programs is known as the Hardest Hit Housing Markets program, which includes California. The intent of the program was to assist homeowners with their mortgages. However, as of December 31, only about 7 percent of the homeowners the program was expected to help have received any money.
]]> Instead of enabling homeowners who need assistance to help make their monthly payment, a report created for the Troubled Assets Relief Program, or TARP, found that more than three-fourths of the funds have instead been spent by states to fund unemployment programs that pay the mortgages of those who have lost their jobs.While this might be helpful to that specific group of people, it does not significantly help the millions of people, including those in California, who have been working as hard as they can to keep their jobs and still pay their mortgages.
People in California who are facing foreclosure can only continue for so long before they have to make a decision. The government aid programs, even if they were administered as planned, would not have saved every person from foreclosure anyway. It may be necessary for some people to take the step of filing for personal bankruptcy in order to stop the foreclosure process and keep their homes.
Source: CNN Money, "Watchdog blasts housing program for 'hardest hit,'" Jennifer Liberto, April 12, 2012
]]>However, there are regulations about what debt collectors can and cannot do in regard to contacting people who owe money. Those debt collectors who are less than vigilant about adhering to the laws can make people's lives uncomfortable if not downright miserable.
]]> Under the Fair Debt Collection Practices Act, several types of behavior are against the law. One involves the time of day that debt collectors may call consumers. Any calls made must take place between 8 a.m. and 9 p.m. in the consumer's time zone. Any contact outside those times is considered unreasonable by the act.Debt collectors are also not permitted to contact consumers after they have filed for bankruptcy or who have representation by an attorney. They also are prohibited from attempting to get around this by contacting someone close to the person they are trying to contact, such as a family member.
If a consumer tells a debt collector in writing to stop all communication, the debt collector must abide. After this action, the only permissible communication by the debt collector is to notify the consumer either that the debt is no longer being pursued or that someone will attempt to collect the debt by other means, such as by a lawsuit.
Source: FindLaw, "Is Your Debt Collector Breaking the Law?" Cynthia Hsu, March 7, 2012
]]>To the surprise of some, a recent study has revealed that the top priority for many Americans is now their car payment. Just 10 percent of those surveyed were late on their car loan payments compared with the other two kinds of loans; this compares to 17 who paid their credit card bills last and 39 percent who paid their mortgage last. This has changed significantly from a previous survey six years ago, where people's top priority was their mortgage.
]]> The main reason for this appears to be the economy and how it affects people. Foreclosure on a house can take two to three years or more after payments are delinquent. Automobiles, however, can be repossessed as soon as 90 days after people stop making payments. Unpaid credit cards might be sent to collection agencies, but there are rarely any physical assets that could be lost.This also plays into what people's priorities are at present. People who have jobs or are looking for work more often than not rely on their cars to get them places. If they weren't able to travel to work, or were unavailable to look for work, then their already tenuous financial situation could crumble.
Source: The Associated Press, "Making car payment take priority, study finds," Pallavi Gogoi, March 29, 2012
]]>Now comes word that eight additional banks will be fined by the Federal Reserve for utilizing these practices. State and federal officials announced last month that they had come to a $25 billion settlement with the five biggest mortgage servicing organizations, including Bank of America, Wells Fargo and Citigroup. However, this new announcement will cover even more borrowers who were in some stage of foreclosure in 2009 or 2010.
]]> Depending on the circumstances, borrowers who went through foreclosure between September 2008 and the end of last year could receive payments of up to $2,000 as a result of the settlement. However, that is small comfort to people who lost their homes as a result of mortgages they could not afford.While this settlement covers people who were already in the foreclosure process, there are still many people in California who may be headed down the same path. However, if you believe that you are facing foreclosure, there is action that can be taken to prevent that from happening. Legal help can go a long way toward keeping you in your home and avoiding the fate that so many people in the country had to meet within the last several years.
Source: The Wall Street Journal, "Fed Plans to Fine Eight More Banks for Foreclosure Violations," Alan Zibel, March 19, 2012
]]>Many sports fans might think it almost unthinkable for an owner of an NBA team to be in a position to file personal bankruptcy. But that's exactly what has happened with one of the minority owners of the Sacramento Kings, Bob Cook. The bankruptcy trustee managing Cook's affairs says the man's 7 percent ownership of the team will probably be auctioned off in connection with Cook's bankruptcy.
]]> The auction comes at a tenuous time in the Kings' history. The team has been on the verge of moving out of Sacramento due to the team's arena situation. The Kings almost left for Anaheim last year, and a group from Seattle has been formulating plans in the event that the Kings decided to leave.However, the controlling owners recently inked a deal with the city and an arena operator for a new facility in Sacramento. According to estimates, the team as a whole is worth about $300 million, so a 7 percent stake in the team could be worth more than $20 million.
Most bankruptcy cases among Californians are not played out in public forums like Cook's has been. However, the same compelling reasons for filing for bankruptcy apply to people with varying degrees of income, from NBA owner on down.
Source: The Sacramento Bee, "Minority owner's 7% share of Sacramento Kings likely to be auctioned," Dale Kasler, Mar. 13, 2012
]]>With many homes ending up in foreclosure, homeowners may not know what to do about the interest owned by a second mortgage holder. Second mortgages are paid off only after the balance of the first mortgage is addressed. Any money leftover will go to that second mortgage holder, which could leave the homeowner with options.
Some may try to negotiate a settlement with the bank or lender that holds the second mortgage. The homeowner will offer a fraction of the amount that he or she owes to be released from the total debt. Since the mortgage holder is not likely to receive any money if the home goes into foreclosure, they may decide that something is better than nothing and agree to the deal.
These negotiations can be very delicate and challenging. If the homeowner is too forceful, they could find themselves without any options. A second mortgage owner does not need to agree to modify the mortgage. They may not be willing to negotiate, instead deciding to keep the homeowner to the terms of their original agreement.
One very important part of any settlement with a second mortgage holder concerns potential liability for the homeowner after the deal. Some lenders may try to hold the homeowner responsible for the difference between the amount paid in the settlement and the total value of the mortgage before release their claim on the home. Homeowners need to be released from the remaining debt to make these settlements truly effective.
Those considering entering into or proposing a second mortgage settlement should speak to an experienced attorney that has handled these matters in the past. A homeowner may agree to a deal without resolving his or her liability, making a bad situation worse.
]]>And if you've been a client of Sobti Law Group, you know first-hand the benefits of filing for bankruptcy. What you may not have been anticipating was Form 1099C, which is a document from a bank or other former creditor ("former" because you no longer owe the creditor any debt after bankruptcy) that, in effect, implies that you owe more on your taxes because you "gained" in income by being forgiven your debt.
We represent bankruptcy clients in the cities of Corona, Palm Springs, Beaumont, San Bernardino, Orange, Riverside, Chino, and Rancho Cucamonga - and the one thing in common with every bankruptcy client from these cities is that they think Form 1099C is the biggest thorn in their side, because they've already filed for bankruptcy and made it through the process. They thought they were done with everything.
These clients are done with most everything, except Form 1099C, as long as you let your accountant know about it, or you otherwise deal with it on your own by filing IRS Form 982. Now, as bankruptcy attorneys, we are not tax attorneys, tax consultants, or accountants. Our core area is bankruptcy law. As such, we could be wrong in downplaying Form 1099C. But we probably aren't.
Just know that the law allows you to avoid paying additional taxes because of Form 1099C - so deal with it promptly by telling your accountant about it or filing the form yourself if you routinely handle your taxes on your own.
]]>If you're worried about the trustee, don't be. She won't make a pauper of you, force you out on the street, take everything you own and hand it over to your creditors. That's not what bankruptcy is. It's also not the Spanish Inquisition, the trustee peering down at you from on high.
In a conference room (generally not a courtroom) the bankruptcy trustee will ask you questions that are meant to clarify her understanding of your financial situation, based on the documents your bankruptcy attorney filed on your behalf. The typical hearing is 15 minutes or less. And your attorney will be by your side the entire time.
There are many different types of bankruptcies. Every case and situation is different. But we'll assume for purposes of this article that you will file a "no-asset" case - which is the typical chapter 7 bankruptcy process for consumers overwhelmed by debt.
Keep in mind, a "no-asset" case does not mean you have nothing to your name. It just means that there are no assets to distribute to creditors that aren't protected under bankruptcy law (exempt vs. nonexempt assets). And that's important, because it relates to the fundamental purpose of bankruptcy: to give you a fresh start.
Unless your bankruptcy attorney says otherwise, you should plan on being able to keep things like furniture, appliances and clothes, as well as may other items. In fact, many bankruptcy clients find that they can keep most of what they want, while getting rid of most of their debt.
There are, of course, exceptions. In typical chapter 7 bankruptcy cases, you will not be able to keep your home unless you reaffirm the debt and continue to make payments. The same holds true for your car (unless, generally, you already own your car free and clear). Also, debt like taxes and child support are generally not dischargeable.
As the U.S. Courts website says, "The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor's nonexempt assets in a manner that maximizes the return to the debtor's unsecured creditors."
So the trustee liquidates nonexempt assets in asset cases. Again, we'll assume that you will file a no-asset case. So put your concerns to rest about the trustee: She's not a judge. Bankruptcy is not the Spanish Inquisition. Even in asset cases, you won't be made homeless.
Now that you know a bit more about the trustee's role in your bankruptcy case, you can worry a bit less.
]]>David Stern - who drove a Bugatti, a very high-end car of Italian lineage, and purportedly owns a 16,000 square foot "compound" as described by ABC News, among other properties - is now persona non grata, nowhere to be found, and possibly faces criminal charges.
Stern's business was built on foreclosure practices that have now become infamous, at least for those whose homes were unjustly foreclosed upon, and among lawyers like us who routinely help distressed homeowners by filing for bankruptcy on their behalf.
If you're facing someone like Stern, or a bank or mortgage lender that is seeking to foreclose on your home, you have a right to defend yourself. Stern may have done anything and everything he could to keep the foreclosure machine going, but that does not mean there's no recourse for distressed homeowners.
Consumer bankruptcy - typically Chapter 7 and Chapter 13 in the bankruptcy code - is a way out, a fresh start, for those who find themselves behind on their mortgage. Your individual circumstances must be taken into account, but your home stands a reasonable chance of being saved from foreclosure through consumer bankruptcy.
Filing bankruptcy puts an immediate halt to all collection action, including pending lawsuits, temporarily stopping home foreclosure proceedings and giving your bankruptcy attorney a chance to save your home.
If you don't want to keep your home, or you have already been foreclosed upon, consumer bankruptcy can eliminate mortgage deficiency balances. The deficiency is typically the difference between what the bank obtained from the sheriff's sale of the house and what's still owed on the mortgage after default. Banks and mortgage lenders can attempt to collect on the deficiency from you-but not if you've discharged it through bankruptcy.
]]>Imagine making monthly mortgage payments and never missing a payment - not one, and never late - yet home foreclosure is nonetheless attempted by various mortgage lenders on three separate occasions.
That's what happened to Ohio couple Michael and Pamella Negrea.
The Negreas' mortgage took quite a journey, as have many other homeowners' mortgages, starting in 1998 after the Negreas refinanced their home. The mortgage was sold to Advanta Mortgage, then Nation's Credit, then Homecomings Financial.
Fairbanks Capital serviced the loan as it made its way through the now-notorious buying and selling process. Fairbanks went on to earn its share of infamy with foreclosure fraud when in 2003 the Federal Trade Commission and U.S. Department of Housing and Urban Development settled a lawsuit that charged Fairbanks with unfair and illegal practices.
Fairbanks agreed to pay $40 million to settle the suit. (Fairbanks has since changed its name to Select Portfolio Processing-presumably in an effort to shed its less-than-stellar reputation.)
One example of Fairbanks's unfair practices was failing to post mortgage payments-and homeowners wouldn't get credit for them. Fairbanks failed to post two of the Negreas' mortgage payments, leading to the first foreclosure attempt by Homecomings Financial in 2001.
As the Plain Dealer's Teresa Dixon Murray reports, Michael Negrea tried to speak with a Fairbanks representative, but his efforts went nowhere. "They'd never call you back," he said.
GMAC Mortgage was the next loan servicer after Fairbanks. Since the Negreas were in foreclosure, GMAC refused their mortgage payments, which only exacerbated the situation.
But the story is just heating up.
The facts and timeline get complicated, so try to keep up:
What do average consumers like Michael and Pamella Negrea do when caught in the crosshairs of a company like GMAC Mortgage?
We say seek justice. Homeowners should do all they can to prevent foreclosures.
]]>As former California governor Jerry Brown takes office for the second time, he faces a state that is in rough financial shape - along with millions of its residents, many of whom are retired and wondering what to do about mounting credit card debt and harassing debt collectors.
And for people like Salt, who provide financial advice to retirees and others on a daily basis, the situation is getting worse. From ongoing medical expenses to stagnant Social Security payments that do not match the increasing cost-of-living, Salt sees bankruptcy this way: "A tremendous burden is lifted from [retirees'] shoulders and it isn't as awful as many expect."
That's the way we see it, too.
For starters, retirement accounts are generally exempt in bankruptcy. Put another way, these accounts are protected. When counseling clients, we advise not to spend down retirement accounts to pay bills or because the client heard that retirement accounts will be liquidated to pay creditors. That's not true.
Because of the tough economic times we are facing, many seniors are being asked to financially assist their unemployed, or underemployed, loved ones. This is in addition to the extremely high increases in medical expenses we are experiencing. The alternative to drawing down a retirement account is charging up the credit cards. As with any debt, the added monthly minimum payments gradually increase to the point where the payments are no longer affordable. Not to mention the long time it takes to pay back credit card debt when only making the minimum payments.
The reality of retirement is that you must live on a fixed income. Fixed incomes are not compatible with rising expenses. And use of credit cards is only a quick fix. Once you've maxed out your credit, you've left yourself vulnerable to persistent debt collectors when you find yourself unable to pay your bills.
And if you have already made withdrawals from savings and retirement accounts, then you will have depleted what you had to live on.
Don't wait until then to file for bankruptcy. Keep your retirement accounts. Keep the equity in your home. Prevent home foreclosure. Get a fresh start.
As USA Today reports, "If you get out from under the burden of debt now - your Golden Years have a real shot at being just that - golden."
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