Tennessee Bankruptcy Law Blog

Our Nashville readers may be interested to know that the total number of bankruptcies filed in Shelby County has decreased over the last several years. In 2011, bankruptcy filings in all chapters decreased from 12,461 to 12,414. The number of Chapter 7 filers with the highest debt also decreased, going from 3,282 in 2010 to 3,112 in 2011. Chapter 13 bankruptcies slightly increased in 2011, going from 9,134 in 2010 to 9,268.

But that doesn't necessarily mean that the economy is improving.

According to some, the downward trend indicates that fewer people are able to file for bankruptcy because they can't afford it. Particularly with Chapter 13 bankruptcy, fewer people have been able to fund the repayment plan at the heart of the filing.

As our readers have most definitely noticed, this is a bankruptcy blog. And as they may have noticed, we mostly write about two forms of bankruptcy: chapter 7 and chapter 13. We focus on these two ways of filing because they are the most common ways people file for personal bankruptcy. So what is the real difference between the two, and what do the two share in common, and how do they affect one's credit?

Both forms of bankruptcy are intended to relieve borrowers from crippling debt. Bankruptcy protection involves coming up with a plan to shore one's finances up and come up with a new game plan. Bankruptcy protection, it has been argued, plays an important role in keeping the economy functioning smoothly.

In our last two posts, we took a brief look at some arguments in favor of discharging student loans in bankruptcy. As we previously mentioned, student loan debt is not dischargeable in bankruptcy under current law unless there is a showing of "undue hardship." This has been the law since 1998, when Title IV of the Higher Education Act was modified to make discharge of student loan and grant liabilities much more difficult.

It used to be that student loans could be discharged only in certain situations, generally when the amount of time between the date the loan or grant was due or the date the bankruptcy was filed, and undue hardship. Under current law, undue hardship is the only factor considered. Proving undue hardship and thereby having the possibility of discharging student loans is tricky business, and it depends on the case law in each jurisdiction.

In our previous post, we began looking at a Forbes article which made the case for opening up student loans for discharge in bankruptcy. As we noted, two major objections to doing that are that there would be widespread abuse of the system as well as broad-sweeping contraction of the private student loan market. As the author of the article points out, though, there is very little evidence to support such objection.

Some object to opening up private student loans to discharge because they believe young people do not understand or care about the negative impact of filing for bankruptcy. The other side of the story is that nobody wants to file for bankruptcy. The vast majority of people suffer from the stigma connected to bankruptcy, and would choose other options if given the chance. And there is in fact a federal program for graduates that permits low monthly student loan repayments and debt forgiveness after a number of years in repayment.

Our Nashville readers know that, from time to time, we write about the burdens carried by those who file for bankruptcy. Medical debt, as we continue to see, is a major impetus for bankruptcy filings. But student loan debt is another burden for a great many Americans. Student loans, whether federal or private, are unfortunately not dischargeable in bankruptcy unless the borrower is able to demonstrate "undue hardship." Such a showing is difficult.

But there are those who believe that more should be done to relieve graduates. A recent article in Forbes magazine, following upon a previous discussion regarding the importance of bankruptcy protections for the healthy functioning of federal and private loan systems, noted that making student loans eligible for discharge in bankruptcy would benefit the economy in a number of ways.

In our last post, we noted that the rapper "Young Buck," who is currently going through a Chapter 7 bankruptcy, may be losing his trademarked name in the liquidation process. Liquidation is something unique to Chapter 7 cases, and is contrasted with the "reorganization" scheme of Chapter 13 bankruptcy. Here we wanted to explain some of basics behind liquidation, and what it involves.

In Chapter 7 bankruptcy, a list of all creditors and the amount and nature of their claims must be provided. Along with that, the filer must also provide the source, amount, and frequency of the debtor's income, as well as a list of all property and monthly living expenses.

Back in June, we wrote about the Tennessee-born rapper David Darnell Brown, also known as "Young Buck" and his current bankruptcy troubles. At that time, Brown was reportedly under investigation as to whether he had been hiding income from the bankruptcy trustee in charge of overseeing his Chapter 13 filing.

Just recently, the rapper was informed that he could lose his name and other assets in his bankruptcy case, which was converted from a Chapter 11 reorganization to a Chapter 7 liquidation case this week. The switch was reportedly made by a bankruptcy judge in Davidson County.

In our last post, we began discussing the dubious collection practices of Capital One, which has apparently sued over 15,000 consumers who had their debt dismissed in bankruptcy. Capital One, which is the 10th largest bank in the United States in terms of assets, is best known for its credit card ads.

Debt collection is reportedly a large aspect of Capital One's business. Capital One invests much of its resources in debt collection in order to make up for the large amounts of uncollectable loans it has undertaken. When a Capital One customer files for bankruptcy, the company has the right to collect its debts. But when those debts are discharged through bankruptcy, there is no longer any debt to be collected. Its practice of suing consumers for debt collection after discharge has taken place is both unethical and illegal.