There are also proposed changes to the homestead exemption, allowing debtors to protect up to $250,000 in equity in their homes, allowing more people to qualify for chapter 7 bankruptcy.

Finally, they are seeking to allow for discharge of student loans in bankruptcy as well, which is currently very difficult to do under the current bankruptcy caselaw. While it is possible, student loan discharge is rarely granted.

I feel these first two provisions make sense, and have a good intent. Congress has been talking about changing the student loan dischargeability laws, but should propose this as separate legislation to be discussed, and studied for its impact. But legislation always has extra provisions weaved into the proposals, so this is nothing new. I would support some modifications of the student loan dischargeability laws, but I am not in favor of a straight elimination of student debt.

The legislation can be reviewed here: The Medical Bankruptcy Fairness Act of 2021

The post The Medical Bankruptcy Fairness Act of 2021 proposed legislation addresses Medical Bankruptcy and Student Loan Assistance appeared first on Chicago Bankruptcy Lawyer.

Under chapter 13, a debtor can pay down these debts, but the remaining unpaid portion remaining at the end of the bankruptcy, will survive and must be repaid.

Tough rules, but there are rumblings in Congress of possible changes under consideration.

Stay tuned.

The post E is for Educational debts appeared first on Chicago Bankruptcy Lawyer.

Judgment
Q:
If a Judgment was won against you for a security bond and you file bankruptcy with no real property or income, can that judgment be included in the bankruptcy?
A:
I am not totally familiar with a ‘security bond.’
Most non-dischargeable debts are government related, or based on fraud. Otherwise, most regular judgments from credit cards or medical bills are discharged upon filing. If you let me know what a security bond is, perhaps I can get you more info, Belinda. Thanks

Judgments before bankruptcy
Q:
I filed for Chapter 7 bankruptcy on 3/04/2004 and it was discharged on 6/16/2004. Previous to my discharge one of my credit card companies was granted a judgment against me on 1/29/2004. The judgment is included in my bankruptcy under “Statement of Financial Affairs” but the debt was discharged on Schedule F Unsecured claims versus on the Schedule D Creditors Holding Secured Claims. My question is two-fold can I get this debt taken off public record based on it being discharged and should my attorney have filed this differently?
A:
It really wouldn’t matter if it was on schedule D or F, as long as it was listed. I assume you are looking at your credit report. The fact that you got the judgment will remain as a factual event, however, they should zero it out or otherwise mark that it was under bankruptcy. The creditor can never collect on this. The fact that you had the judgment may remain on your credit for up to 7 years, similar to foreclosure, and bankruptcy will show for up to 10 years on your credit report.

Divorce and Chapter 13
Q:
My wife and I filed a chapter 13 about 4 months ago. We have been marital problems for years and despite marriage counseling have decided a divorce is the best option for all involved parties, including my 5 yr old daughter, to avoid any more emotional damage by staying together in an unhappy home. We were not eligible for Ch. 7 because of income, but now divorce will change this quite a bit. We did file jointly on the Chapter 13. What options do I have to still keep the house as my form of Child support and still have enough money to live on myself? My Ch. 13 was a 100% repay plan. Can I reduce the percentage amounts? Or can I convert to a 7 in order to discharge the debt so that paying my wife child support will be and option. Currently I have a wage deduction weekly to pay the plan as it now stands.
A:
You should speak to both your divorce attorney and bankruptcy lawyer. It is possible to convert the case, or even to split the cases into 2 separate cases if one party wants to convert to chapter 7. You would have to have enough combined monthly expenses to eat up the disposable income on a conversion. There are other budget test and asset protection issues as well, so sit down with your lawyer to map out the best plan of attack.

Can I file bankrupt on a student loan ?
Q:
Can I file bankrupt on a student loan that I received in 2001 with the help of a co-signer?
A:
Hi Shana,
Unfortunately, student loans, more precisely ‘debt for educational purposes’ are generally non-dischargeable, unless you can prove that it is an undue hardship to repay it. To do that, you would have to satisfy the ‘Brunner’ case test: 1. you paid it when you could in the past, you have no present ability to repay it, and you have no future ability to repay.

Therefore, 99% of the time, student loans are non-dischargeable in chapter 7 bankruptcy because of this tough standard to beat them.

bankruptcy
Q:
We filed bankruptcy in sept 2003 after my spouse lost his job. We have struggled till now trying to keep our house. It was sold public auction in May . Are we responsible for the remaining balance and if so can we claim again? If we have to pay back 100,000 we will not even be able to rent the house we are in .

A:
Your answer depends on whether you reaffirmed the mortgage in a chapter 7. It would also depend on if your jurisdiction allows lenders to collect on their deficiency balances.

If you did not reaffirm the debt in the chapter 7, technically it is discharged in that case if you listed it in the petition.

You would only qualify for Chapter 13 if your prior chapter 7 was less than 8 years ago.. Chapter 13 is a debt repayment plan

chapter 13
Q:
I am in a chapter 13. I am about to be discharged but I have not turned over my last 3 years tax returns or refunds. I have been informed by the Trustee that if I do not turn over the tax refunds my case will be dismissed. What does it mean when they dismiss your bankruptcy?

A:
It means that your creditors can collect from you. If you, let’s say, paid in 10% to your unsecured creditors, they can come after you for the other 90%.
You should submit the items to the trustee to get the benefits of your bankruptcy filing.

Follow-up:
What if I do not have the money? Is there something I can do?

A:
You need to discuss the issue with your lawyer. In Illinois, debtors do not usually have to pay their tax refunds to the trustee. Therefore, discuss with your lawyer what repayment options you may have. Perhaps they can extend the case to compensate for that money.

Garnishment/Freeze placed on account a year and half after bankruptcy discharged
Q:
I live in the state of Georgia. I filed chapter 7 in October of 05 My bankruptcy was discharged in January 2006. On July 10, 2007 an attorneys office placed a freeze/garnishment on my checking accounts. I confirmed with the credit card company that this was covered in my bankruptcy. The original debt with the credit card company was a little over one thousand dollars. This attorney placed a garnishment of over THIRTY THOUSAND dollars on my checking account and placed a lien on my home. How they came up with that amount, your guess is as good as mine. This freeze on my checking account has left me with no way of paying my bills (even though I have the money, just can’t touch it) and has left me unable to go to the grocery store to feed my family of 6. My bank also notified me that because of the freeze on the account any checks that I have written will be returned as non sufficient funds. Which will cause me a lot of money. My bank charges 33 dollars for each NSF charge. Plus what ever each store decides to charge me for the “bad” check. What are my rights and what can I do to this clear case of contempt of court? Can I sue them for damages? Can I sue them for the cost of having a lawyer reopen my bankruptcy case? Any information would be greatly appreciated.
Thank You,
Michelle

A:
You probably do not have to reopen the bankruptcy case. Assuming that you listed this debt in the case, it sounds like you may have a potential state court action for a violation of the bankruptcy discharge. You should contact your bankruptcy attorney for the process…he or she may be able to contact the attorney to get them to lift the hold without having to bring a lawsuit.

Question about selling a store before/after the bankruptcy
Q:
Hi.
I am trying to file a bankruptcy(Ch 13 I think because I am trying to keep some assets I need). I have a primary work, and there is a store(mini mart running slow) under my name run by my parents. If I file ch 13, and if My parents sell the store, will those assets go to trustee 100%? we started the business with around 50K, and we are trying to sell it higher(hopefully). So say If we sell it as 80K, will those 30 difference go to trustees 100%?
2. I have filed the tax with my wife jointly, will she bee effected when I file a ch 13 ? I didn’t join anything with her other than the tax filing.

Please help!!!

A:
Hi Song,

All of your assets, that are in your name need to be disclosed in a bankruptcy case. Any transfers or sales need to be approved by the court and trustee. In most cases, any unexempt proceeds (ask your bankruptcy lawyer for specifics) would normally be paid to the trustee towards your chapter 13 plan.

You would file taxes like you normally do, there is no special bankruptcy exemptions that you would have to worry about.

Foreclosure and Bankruptcy
Q:
We have a 1st, 2nd, and 3rd mortgage and can no longer afford the house. Our income is too high for chapter 7 and we most likely would file chapter 13. If we surrender the house during BK, is this considered a foreclosure? Finally if the bank sells the house and it does not sell for the total amount owed, will the remaining unpaid balance be rolled into our payment plan or will it be discharged by the judge?

A:
Usually, the bank will foreclose, but the chapter 13 bankruptcy will trump it, discharging any further liability on the claim if you set up your plan correctly. Therefore, you should speak to an experienced chapter 13 bankruptcy attorney to help assist you.

Selling a home in bankruptcy
Q:
My mother and I own a home I am primary on the mortgage. I just sold the home and purchased a new one in my name. My mother filed bankruptcy back in Jan 2007. I have a closing date on the home I own w/ Mom and the buyers closing atty called and said we have to get permission from the court to sell the home. My Mom has contacted her atty’s office but cannot get past the paralegal who says this could take 8 to 10 weeks to get to court. Is there a faster way to get permission to sell the home. My mother will not receive any money from the sell and she is paying the court monthly on her bankruptcy. The closing is scheduled in 3 weeks. HELP!
A:
Hi Dana,

Mom would need to bring a motion in bankruptcy court to obtain permission to sell the home. The notice period is 20 days, so realistically should take about a month to be heard in court. You will need to contact your real estate attorney and advise them that they may need to extend the closing date. Hope that helps.
Thanks.

Thanks for reading the Q&A for bankruptcy. Keep in mind, state law applies, and I am only licensed in Illinois, so my answers are based on Illinois case law. You should always seek out a local bankruptcy attorney to answer your case specific questions. Thanks

The post Rapid Fire Q&A appeared first on Chicago Bankruptcy Lawyer.

Students and loans: ‘Til death do us part

May 6, 2007

BY DAVE NEWBART Staff Reporter dnewbart@suntimes.com

They liken it to a financial death sentence.

They can’t get a car loan, a home mortgage or any other type of loan. They’ve lost jobs and even spouses over it.

They are so humiliated they don’t want any of their friends or family to know.

And for most, there is no way out.

They are former students trapped under the weight of student loans. The same vehicle that allowed them to get a college education has left many graduates buried in debt with no reasonable way to climb out.

Some students who never graduate are stuck paying off loans without the earning power of a degree — an estimated additional $1 million in lifetime earnings.

And some students who finish can’t afford the monthly payments. Others lose jobs and can’t catch back up. Then they get turned down by employers who increasingly check credit records before hiring.

Some say they would make small monthly payments to show good faith — only to see their balances continue to grow and to receive harassing phone calls from collectors.

To be sure, most borrowers pay on time; default rates are at an all-time low.

But for those who run into trouble, changes in federal laws — including many in the last decade — have made student loans among the hardest debts to discharge. They’ve also made the loans among the most lucrative for private lenders, who face little risk — because the government backs the loans — but reap the benefits when balances balloon.

Some borrowers say they accept reasonable interest, but they believe the fees and penalties — which over time can double or triple the loan balances — are unfair.

Interest rate over 18%
Many of the students awash in debt say that they were blinded by the promise a college degree holds and unprepared to take on high levels of debt at such a young age.

Connie Martin’s son signed up for cooking school in Chicago in 2002 at age 25. To pay for it, he borrowed $73,000, mostly in private loans from Sallie Mae, the largest student lender, at 18?250-134?/’ percent interest.

“He didn’t know what the interest rate was. … He just wanted to go to school,” said Martin, of Sycamore.

His first payment was $1,100 a month, his entire monthly salary at a downtown eatery where he went to work after graduation.

“I don’t understand how they can lend a kid that kind of money with no credit history, who never owned anything, with no co-signers,” said his mother, who only learned of the situation after the bills started to pile up.

Sallie Mae officials said they no longer offer such high-interest loans, and have offered students a chance to refinance at a lower rate if certain conditions are met. “We recognize it’s high,” spokeswoman Martha Holler said.

Martin’s son declined to comment. His balance has since grown to $98,000.

‘It’s like indentured servitude’
Greg Treece, of Downstate Mattoon, now wishes he never enrolled in Washington University’s Occupational Therapy program. “Choosing an expensive private school and borrowing the money to go there is the single greatest mistake I have ever made,” he said.

Treece took out $84,000 in loans. Six months after he got out of the St. Louis school, his monthly payment was more than half his take-home pay for his first job in Chicago. He later lost his job. With compounding interest, his loan quickly skyrocketed. At times he seriously wished he could go to jail in exchange for wiping out the debt.

With a new job, he’s managed to pay $60,000, but his balance remains at $111,000 because of fees, penalties and interest. “It’s like indentured servitude,” he said.

For those who default, lenders can truly play hardball, often employing no-scruples private collection firms that call borrowers as often as 10 times a day.

Shirley, an Ivy League-educated lawyer, lost her job in Chicago in the late 1980s. She pleaded for reduced payments from a collector working for the Illinois Student Assistance Commission — but was denied.

“I said you are driving me to bankruptcy,” she recalled. “They wouldn’t budge.”

In bankruptcy court ISAC claimed she owed $78,000, which included $13,000 for collection costs, 20 percent of the total debt. Nearly all of the debt was eventually erased, according to court records.

Because that was before the recent law changes, she should have been clear.

Loan chief admits ‘mistakes’
But several years later, the collectors began calling again — first from ISAC and then from the U.S. Education Department. They claimed the bill was now over $100,000.

“It was as though they were above the law,” she said. She eventually went to court again and proved she no longer owed the money, but her husband left her in the process. She asked that her real name not be used out of fear of retaliation.

ISAC and the Education Department say they have several programs that allow students to delay payments in hard times or make lower ones based on income. Officials say they try to help borrowers in default get back into good standing, a process known as rehabilitation. Last year, ISAC rehabbed $30 million in defaulted loans, up from $4.4 million in 2002.

Agency director Andy Davis says the agency has to strike a balance between helping borrowers repay and making sure taxpayers aren’t left in the lurch.

But he acknowledges his workers “make mistakes” and said he is looking to make changes in some of the outsourcing of collections.

Then there are those with hard luck, who make bad decisions or just simply can’t get a break.

Richard and Sheila Friese both have degrees from Southern Illinois University, financed in part on student loans. They were also both discharged from the Navy after suffering injuries while serving stateside. Richard is learning disabled.

They have never been able to find high-paying jobs; now they both use wheelchairs to get around and suffer from ailments including arthritis, constant abdominal pain and chronic fatigue. They’re currently fighting with the Veterans Administration over benefits; they also are wrangling with the Social Security Administration.

Collector: ‘We will never go away’
They currently have no income to pay off their combined $141,000 loan balance. ISAC has seized $3,200 in tax refunds from Sheila, 37. Richard, 49, avoids the phone after constantly being called by collectors for Sallie Mae — one of whom he claims called him a “low-life, S.O.B.” Holler said Sallie Mae’s collectors are trained in fair debt collection practices. “That should not happen,” she said.

If this were virtually any other debt, experts say, the couple would be able to discharge some or all of it through bankruptcy. But the Frieses, of Mundelein, are stuck. “Our life has hit a brick wall,” Richard said.

Davis said it might make sense for the federal government to “write off” debt if borrowers — particularly vets — have no hope of paying.

Pam, 58, of Dolton, graduated from Downstate SIU-Edwardsville in 1984, but spent time on welfare. She eventually defaulted on her loan after a dispute over the amount of the balance and monthly payments. Her $12,500 in loans has grown to $28,000. Experts say borrowers should continue to make payments during a dispute so the loan doesn’t get out of control.

She has gone underground, blocking collectors’ calls and running her own business so her wages can’t be garnisheed. But when collectors do get through, they have a harsh message. “When they call they say, ‘We will never go away until you are dead.'”

UP, UP AND AWAY

Percent of students with loans
1993: less than 50 percent
2004: 66 percent

Average debt for graduating seniors
1993: $9,250
2004: $19,200

Number of graduating seniors with debt over $40,000
1993: 7,000
2004: 78,000

SOURCE: Project on Student Debt

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