Diamond Speaks His Mind on Bankruptcy and Related Topics

MEANS TEST TWEAKED, SCORE TWO POINTS FOR THE CONSUMER

The "Means Test" became law as part of the Bankruptcy Consumer Protection Act Of 2005.  The test is mandated by the bankruptcy code including a long, vague and confusing explanation of exactly how to set up the test, which was left to the Office of the United States Trustee.  The backbone of the test is derived from the Internal Revenue Code.  The test has gone through more than a few changes as people in charge attempted to make the test fit the statute and has been subject to a number of court rulings both by the Bankruptcy Courts and the Courts of Appeal.  Two (2) changes that have recently taken place are:

     The Court of Appeals for the Fifth Circuit, the Appellate Court that Texas is subject to has recently ruled on whether or not a debtor is entitled to an "Ownership Expense" deduction when the vehicle is paid for.  The Court ruled that a debtor is entitled to an ownership expense deduction regardless of whether or not there is a debt against the vehicle.

     Is a debtor entitled to an additional deduction with a vehicle that has high mileage?  Obviously a car that has low mileage costs less to operate than a vehicle with high mileage.  The Office of the United States Trustee has determined that a debtor is entitled to an extra deduction for vehicles that have over 200,000 miles on them.  Exactly how much of a deduction is unclear at this point and is apparently determined on a case by case basis.

The result of the foregoing is that the bar has been lowered to some extent as to whether or not a debtor can be eligible to file a Chapter 7 bankruptcy rather than a Chapter 13 bankruptcy.

 

 

DISCHARGABILITY OF STUDENT LOANS IN BANKRUPTCY

In an average bankruptcy case, regardless of the chapter (7,13) filed, student loans are not dischargeable.  In the Western District of Texas, payments on student loans may not be included in a Chapter 13 Plan unless such plan proposes to pay the unsecured creditors 100% of their claims.  Instead, student loans are deferred until after the Chapter 13 plan has been completed. All the while interest is accruing on these loans. 

There are possibilities that present opportunities to discharge student loans, as set forth below: 

 1. The opportunity to discharge a student loan is to determine whether or not the loan made is actually a student loan.  The provisions of the bankruptcy code dealing with student loans are very specific, although very broad as to what constitutes a student loan that is non-dischargeable.  Therefore, each loan must be examined to determine whether or not the loan is of a type that falls within the definition of the statute.  If it does not, then the loan is dischargeable like any other unsecured claim.

 2. The opportunity to discharge a student loan is set forth in the statute and reads in part "unless accepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for..."  The burden of proof a debtor must overcome is very high but not impossible.  What constitutes "undue hardship" is in fact driven and therefore is dependent on the facts in each case.

 3. A potential opportunity that is presented is more complex and deals with the situation where a loan was made but the educational institution failed to furnish that which was promised at the time the loan was made.  An example of this type of situation is where an educational institution failed before the institution furnished or completed the course(s) and the student was unable to transfer all or any portion of the credits that would have been received to a second institution.  Whether or not this type of situation would allow the loans to be discharged would in all probability depend on the relationship between the financial institution making the loan and the educational facility.

All of the above is complicated by a case decided by the Supreme Court commonly referred to as "Seminole".  The case limits the Bankruptcy Court's jurisdiction to decide certain issues if they only involve States rights.  Therefore, if the student loan referred to is made by a state institution and does not involve any federal institutions, the court may not have the power to hear and determine any of the above.

 

 

 

 

 

Pay Day Loan Companies Are Cunning!

Lots of people seeking help from a bankruptcy lawyer to file a Chapte 7 (eliminate unsecured creditors) or a chapter 13, have one or more payday loans.  Payday loans are difficult to deal with for both the client and the bankruptcy lawyer.  The companies that offer these loans seem to know every trick in the book to continue  receiving payments, as well as avoiding having their addresses known so they cannot be notified of a bankruptcy filing.  The only way to prevent such a lender from collecting on their loan is to close the bank account upon which the lender collects its funds.  Merely having a zeo balance does not seem to work, inasmuch as many people have accounts that have overdraft protection or at the least, will incur a charge for every returned check.  Closing their bank accounts presents a few challenges to many clients for reasons such as automatic withdrawals for monthly payments and/or direct deposits of checks. If you are going to stop these folks from collecting, you must promptly close your account and open a new account at a different bank.

 

 

 

 

 

A New Amendment to the Bankruptcy Code - Maybe?

According to multiple sources, including the American Bankruptcy Institute and the National Association of Consumer Bankruptcy Lawyers, efforts to amend the bankruptcy code to allow bankruptcy judges to modify home mortgage including reducing the outstanding debt to the current market value and modifying the interest rates to current rates is moving forward.  It is not clear what the final legislation will look like inasmuch as there are multiple versions of the amendment being offered and there is bound to be last minute changes to the legislation as well as changes made to resolve differences between any bill passed by the Senate and the Congress.  WHAT'S IMPORTANT IS SOME TYPE OF RELIEF IS ON THE WAY.

 One of the things that is lost in the confusion over the various provisions of the stimulus package is that the amendment to the bankruptcy code will cost the American Taxpayer nothing.  Absolutely no funds are needed for this amendment to be implemented. 

Gay Couples and Chapter 13 Bankruptcy

Gay couples, especially those that are in a long term relationship, present a unique set of problems when it comes to seeking relief under Chapter 13 of the Bankruptcy Code.  Gay couples in a long term relationship usually hold the majority of their assets jointly as well as the debts they have accumulated.  This situation is similar to most "married couples".  Gay couples in Massachusetts, the only state that allows gay marriages and/or resides in a state that recognizes gay marriages, the problem described below does not apply. 

By law, it is questionable whether a civil union between same sex couples would apply in the same fashion as a conventional marriage that is authorized in Massachusetts.  Most married couples seeking relief under the bankruptcy code, file what is called a ‘joint case'.  A joint case is started by the filing of a single petition by an individual and such individual's spouse.  It is important to note that the bankruptcy code does not refer to a man and a woman but rather an individual and the individual's spouse. 

There is a solution that gives a gay couple roughly the same relief as that of a married couple.  That relief is provided for in the Rule of Bankruptcy Procedure.  Partners may seek to have their cases jointly administered, which has, for the most part, the same effect as filing a joint case.  This has been accomplished by each person filing a separate petition requesting relief under Chapter 13 of the Bankruptcy Code.  Upon the filing of such petitions, or shortly thereafter, a Motion is filed with the Bankruptcy Court requesting the two cases be jointly administered,   i.e. joined together under a single case number and for the most part handled as one case. 
The foregoing has been ruled upon successfully by at least one bankruptcy judge. 

There remains one unresolved issue that will likely be addressed by a bankruptcy judge soon as to the issue of ‘substantive consolidation (SP)' these cases, which would give all the benefits of filing a joint case. 

 

Harassing Phone Calls From Creditors Can Be Stopped

A consumer being harassed by ‘Debt Collectors' has significant rights under federal law: including the right to demand that a Creditor stop communicating with you.   Under the "Debt Collection Practices Act", a federal statute, there are two (2) ways to stop those harassing phone calls or for that matter any form of communication to you. 

1- To inform the Creditor that you are being represented by an attorney and providing the Creditor with the name, address and telephone number of the attorney you have hired. The applicable provision can be found in Section 1692c(a)(2) of the Statute.

• 2- Write a letter to the Creditor informing the Creditor that you are not going to pay the debt and that you wish all forms of communication to stop. The applicable provision can be found in Section 1692c(c).

BANKRUPTCY JUST A SIGN OF THE TIMES!

 Life is uncertain that's for sure.  You watch the news and we're told these are scary times and that our ‘banking institutions' have made mistakes and need help - billions of dollars of help.  Where is the money coming from - looks like it may come from you and me.

So, perhaps it's time to reconsider the stigma of filing for bankruptcy.  Let's face it - if you are not able to keep up with your expenses - why not take advantage of the laws that allow for ‘debt forgiveness'.   Bankruptcy does not give you permission to be irresponsible - bankruptcy gives you the ability to manage your finances (Chapter 13) or wipe out your unsecured debts (Chapter 7).   

No one likes to admit they made mistakes or even acted a bit irresponsible.  But no one likes arguing with their spouse over money and the tension that fear and unmanageable debt adds to a marriage can feel like the last straw.  Our debts don't define us.  Our ‘toys' and our ‘careers' don't define us.  When you look in the mirror and review your personal character inventory - how do you rate?  Are you someone that is caring, loving, generous of spirit, honest, forthright, etc.? I believe that's what defines us.The bottom line is - if you've made mistakes with finances - forgive yourself; if you have medical bills, lost your job, your divorce set you back, your mortgage payments are currently unaffordable - help yourself and your family by seeking ‘debt forgiveness'.  At least that's honest.  Now, can we say that about many of our financial institutions that have either failed or on the verge of failure?  Just something to thing about............