Who Will Know About My Bankruptcy?

Filing bankruptcy is a very personal process.  Many clients worry that their friends and neighbors will learn about their bankruptcy.  A common question is, “Who will know about my bankruptcy?” 

First, personal bankruptcy cases are generally not reported in the local newspaper.  Unless you are a celebrity or public figure, your bankruptcy is not newsworthy.  More than 1.4 million consumer filings were recorded last year, so many larger newspapers would have to publish thousands of bankruptcies in their papers each month.  It is not cost-effective for a newspaper to search through the bankruptcy court records to find individuals who filed in their distribution area and use valuable print space to report on personal bankruptcy cases. 

Second, the bankruptcy laws require notices of the bankruptcy filing to go out to the following: 

1. Everyone you owe money (called “creditors”);
2. The bankruptcy trustee;
3. Co-signors and co-debtors; and
4. You and your attorney. 

Under special circumstances other notices are sent, for instance if you owe taxes, or if you want to terminate a lease or contract.  Family, neighbors, friends, your employer, your bank, etc. will generally not receive notice of your bankruptcy.  A common exception to this general rule is when the debtor causes a voluntary wage withholding to pay chapter 13 plan payments. 

Third, while bankruptcy court proceedings and trustee meetings are open to the public, it is unusual for the press or members of the public to attend.  Most of these meetings are very brief and can even be a little boring. 

Finally, other than receiving notice of the bankruptcy filing from the bankruptcy court, there are only a few ways to learn of a bankruptcy case.  The most common way is to contact the bankruptcy court directly.  Most bankruptcy courts have an automated telephone system that will provide basic case information to the public. 

Filing a bankruptcy petition is generally a private and confidential process.  While there are no guarantees that your friends and neighbors will not learn about your bankruptcy, chances are they will not unless you decide to tell them.  However, every case is different.  If you have specific questions about the effects of filing bankruptcy, consult with an experienced bankruptcy attorney.

Living With Non-Dischargeable Student Loans

The federal bankruptcy code states that a debtor may obtain a discharge of a government-sponsored student loan only if repaying the loan would impose an “undue hardship” on the debtor and his dependents.  Most bankruptcy courts interpret “undue hardship” as meaning that the debtor cannot repay the loan and maintain a minimal standard of living.  As a result of this very high bar, it is rare that a student loan is discharged during bankruptcy. 

Consequently, many bankruptcy debtors are caught in a student loan trap of being unable to pay on the student loan and the interest continues to accrue.  While discharging the student loan may not be possible, there are options for dealing with a student loan during and after bankruptcy. 

First, the student loan lender or collection agency is strictly forbidden from engaging in any collection action during the bankruptcy.  This protection (known as the “automatic stay”) may last from a few months during a Chapter 7 to several years during a Chapter 13 repayment plan.  Interest may continue to accrue and will be tacked-on at the end of the bankruptcy case. 

Second, if the student loan was not defaulted prior to the bankruptcy filing (meaning no payment for more than 270 days), the account will usually be re-aged and is considered current upon the conclusion of the bankruptcy case.  This is a good time to negotiate with the lender for a payment plan you can afford.  If the student loan was defaulted prior to the bankruptcy, the lender may offer a loan rehabilitation program. 

Finally, your student loan lender has many repayment options after your bankruptcy case ends, including the Income Based Repayment Plan which limits your loan repayment to 15% of your income and offers loan forgiveness after 25 years of repayment (or 10 years for public service employees). 

If you are struggling with student loan debt, speak to an experienced bankruptcy attorney and discuss your options.  Your attorney can explain the many ways for dealing with student loan debt and can help you decide on a course of action that is best for you and your family.

Predatory Lending and Scams

               Unfortunately, there are always unscrupulous people out there who are looking to take advantage of someone else’s financial desperation.  Such people are called predatory lenders.  These lenders target consumers who have few other financial resources and con them into loans or other agreements that usually are grossly one-sided in favor of the lender and end up with the consumer in worse financial condition than when he or she started.  

                If you are in a foreclosure, consult an attorney.  Bankruptcy, loan modifications and refinancing are some of the ways to avoid losing your home.  You need legal counsel experienced in these areas to review your situation with you.  Also, avoid making your situation worse by following these precautions: 

                Avoid lenders who seek you out and make promises that sound too good to be true.  Often the loans made by these lenders will contain harsh provisions that no borrower would ever sign if they were thinking clearly.  Ridiculously high interest rates and stiff pre-payment penalties may be buried in the fine print.  Also, the interest rates for such loans may not be “fixed” which means that the borrower’s monthly payments may soon sky-rocket and the consumer may find themselves back in foreclosure.  

                Do not deed your property over to someone who proposes to then “rent” the property back to you after they “catch up” the original mortgage loan.  Once the property is deeded out of your name, the lender has the legal right to do with the property as it pleases.  This may include selling or mortgaging the property.  Since you are now merely a tenant of the property, your rights will be severely reduced and any of the profit made from the property’s sale will end up in someone else’s pocket.  

                 Do not pay someone to work out a mortgage resolution for you. If you are eligible for a loan modification, you can apply for a refinance or modification program for free by contacting your lender.  If you believe that you need help with this process, many non-profit reputable agencies exist who will assist you without you having to pay a large fee for their services.  Most of my clients who have hired a for-profit “mortgage resolution” firm have told me that after receiving their large initial payment that the company never did anything to assist in the loan modification process. 

                Never make your mortgage loan payments to any party other than your mortgage company.  Prior clients have advised that they were contacted by companies promising lower interest rates and much smaller monthly payments.  The scammer insisted that the clients make payments only to the mortgage resolution company rather than to their lender. Ultimately it was discovered that the new company had never turned the payments over to the mortgage company but had instead kept them to apply against phony “fees” that they were charging the client.  The result…foreclosure actions filed by the mortgage companies.  

                If you are facing foreclosure, consult an experienced bankruptcy attorney for legitimate advice.

Changes in Law Make Bankruptcy More Accessible

Effective April 1, 2010, certain dollar limits contained in the Bankruptcy Code increased.  A full comparison of the current and changed amounts can be found by following this link.  These most meaningful changes to consumer bankruptcy cases are: 

• An increase of the eligibility limit for Chapter 13 from $336, 900 to $360,475 in unsecured debt, and from $1,010,650 to $1,081,400 in secured debt; 
• The federal homestead exemption increases from $136,875 to $146,450; and 
• The presumption of fraud for luxury items purchased with a credit card within 90 days of a bankruptcy filing increases from $550 to $600; and the presumption of fraud for credit card cash advances within 70 days of filing increases from $825 to $875. 

Many other dollar amount increases took effect on April 1, 2010, including increases to protected educational accounts, increasing restrictions to the bankruptcy trustee’s powers under certain circumstances, and increased protection for retirement accounts.  In all, these increases will make the bankruptcy attorney’s job of protecting the consumer debtor a little easier, and make the bankruptcy process more accessible.  Please note that these changes will only affect bankruptcy cases filed on or after April 1, 2010. 

If you and your family struggle each month to pay bills, consult with an experienced bankruptcy attorney and discuss your financial options.  There are many repayment and “walk-away” options available under the Bankruptcy Code.  Get the facts and don’t let debt ruin your life.

BBB Warns of Debt Relief Fraud

The Better Business Bureau recently issued a warning to consumers regarding the misleading practices of debt settlement companies.  This warning comes after receiving more than 3,500 complaints since the start of the recession in 2007.  The BBB reports that many individuals paid hundreds of dollars in upfront fees to debt settlement companies, but only fell deeper into debt after the process failed.   

In an article posted to the BBB website, Stephen A. Cox, President and CEO of the Council of Better Business Bureaus said, “The debt settlement industry is flourishing and many families are being lured into believing that debt settlement is an easy fix and that their credit card debt will just disappear.”  Mr. Cox went on to say that “the truth is that the process doesn’t work for many consumers, it has potentially serious negative consequences, and should primarily be used as a last ditch effort[.]” 

Debt settlement companies typically offer to negotiate a settlement for a fee.  Unscrupulous companies mislead consumers with promises of large savings and quick resolution.  The truth is that it is difficult for a non-attorney to obtain a debt reduction of 50% or more.  Additionally, these types of settlements are only available with a one-time payment.  Most debt settlement companies require an up-front fee and ask the consumer to make payments into a savings account held by the debt settlement company for future settlement.  During the process of six months to a year that it takes to build up the account, the consumer is at risk of garnishments and lawsuits. 

In some cases fraudulent debt settlement companies have stolen from the consumer accounts, or refused to return funds.  In other cases the consumer is driven deeper into debt when the debt settlement company is unable to settle the debt. 

Unlike debt settlement, the bankruptcy process is a legal process supervised by a federal judge and the U.S. Department of Justice.  Your agent is a licensed attorney throughout the process.  There are no hidden fees and you pay only what you are able to afford.  At the end of the bankruptcy process your debts are discharged and you receive a financial fresh start ordered by the bankruptcy court. 

If you are struggling with debt and need financial relief, speak with an experienced attorney and discover how the federal bankruptcy laws can help you and your family.  Don’t be a victim of a debt relief scam.