Tennessee Bankruptcy Attorney Blog | Nashville Chapter 7 Lawyer | Franklin Chapter 13 Law Firm

New study suggests black Americans face bias in bankruptcy, P.2

2012-01-31T20:37:38Z

In our previous post, we began looking at a recent study which found that black Americans are nearly twice as likely to file for Chapter 13 bankruptcy as whites. As we noted, the research showed that subtle biases on the part of attorneys may have something to do with the pattern.

Chapter 13, of course, is more expensive and burdensome to debtors than Chapter 7, and Chapter 13 debtors are more likely to fail. Almost two out of every three Chapter 13 plans are not completed and the remaining debts are not discharged. In those cases, the debtors gain no benefit from bankruptcy.

]]> But Chapter 7 is not always a better choice. Those who wished to save their homes, in particular, will benefit from Chapter 13.

Still, the study showed that the desire to save the family home from foreclosure was not a decisive factor in the difference. As sources point out, the rate of filing for Chapter 13 was still twice as high as the rate for other races among blacks who did not own their homes. That pattern held nationwide.

Debtors who do not finish Chapter 13 often do not have enough income to adhere to the repayment plan monitored by the court. Sometimes this happens because of unforeseen costs or changed family circumstances.

The study apparently accounted for various factors, including the fact that some distressed debtors pursue Chapter 13 over Chapter 7 despite the fact that the former is more expensive. The possibility of unethical attorneys promoting Chapter 13 filings in order to gain higher fees was also taken into account, but the effect was not seen across all races.

Some attorneys dispute the assumption that Chapter 13 is always more burdensome and always requires debtors to pay more to creditors.

In any case, this is not the first study showing a higher incidence of Chapter 13 filings among black Americans. Whatever the reasons for it, it is clear that more needs to be done to ensure black Americans are receiving the best advocacy possible.

Source: New York Times, "Blacks Face Bias in Bankruptcy," Study Suggests," Sara Siegel Bernard, January 20, 2012.

Crippling medical bills can be discharged in bankruptcy

2012-01-30T20:39:17Z

Medical bills can be expensive, as we all know, particularly for those with chronic conditions. And costs certainly aren't getting any cheaper. Unfortunately, there is sometimes little option for those suffering from this debt but to file for bankruptcy.

Almost 44 million Americans are currently paying off medical bills, compared to 8 million in 2008. Many of these are struggling with their medical debt, roughly 25 percent of them, according to a report by the Center for Studying Health System Change. That number has risen from around 20 percent back in 2010.

]]> Medical debt, as our regular readers know, is one of the top factors contributing to bankruptcy filings. For many, bankruptcy is the only option to gain relief from crushing medical debt.

Bankruptcy should not be seen as an easy option. It will affect your credit score in the short term and will remain on your credit history for up to ten years. Fortunately, the credit score often improves in as little as a year afterward, sometimes as much as 100 points.

Filing for bankruptcy requires a little homework as well. Eligibility varies by state, and is based on factors like the size of household and annual income. Timing can also be important, as one's income is determined by what one made in the six months preceding the filing.

When medical bills are involved, it is easier to qualify for bankruptcy if all medical bills have been charged to one's credit card, since this shows the money was paid to the hospital and was a necessary expense.

Discharge of medical debt will not, obviously, affect one's expenses going forward. So those requiring ongoing treatment will continue paying those expenses, which can still be burdensome.

Bankruptcy is hardly ever going to be a pleasant experience, but sometimes it is necessary in order to survive financially.

Source: Business Insider, "Drowning In Medical Debt? Filing For Bankruptcy Could Be Your Life Raft," Noelia de la Cruz, January 27, 2012.

New study suggests black Americans face bias in bankruptcy

2012-01-26T18:35:55Z

According to recent research by professors at the University of Illinois and the University of Arizona, black Americans are almost twice as likely to end up in Chapter 13 bankruptcy as whites. Even when the researchers adjusted for income, homeownership, assets and education, the difference still existed. Chapter 13 is known to be the more burdensome and costly form of personal bankruptcy

The evidence presented in the study seems to suggest that attorneys direct blacks to Chapter 13 bankruptcy, at least partly because of conscious or unconscious bias.

]]> Changes to the federal bankruptcy code made in 2005 were aimed at forcing more debtors to file under Chapter 13 and repay at least some of their debts, but the changes-as is well known-have largely failed. Instead, the rate of Chapter 13 filings has remained relatively steady, staying around 30 percent.

Most debtors do, in fact, file for Chapter 7 bankruptcy, which allows them to have most of their debt discharged within months. It is less expensive than Chapter 13 bankruptcy, and tends to have a higher success rate. Chapter 13, on the other hand, requires the filer to utilize their disposable income to pay back their debt over a period of several years.

Part of the research involved a survey which found that bankruptcy attorneys were more likely to direct black debtors to a Chapter 13 filing than white filers, even where their financial situations were identical.

The researchers noted that the disparity is not due to any kind of overt discrimination, but simply to individual biases.

In our next post, we'll continue looking at this story.

Source: New York Times, "Blacks Face Bias in Bankruptcy, Study Suggests," Tara Bernard, January 20, 2012.

Decrease in bankruptcy filings doesn't indicate improving economy

2012-01-24T18:33:54Z

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.

]]> In Chapter 13 bankruptcy, bankruptcy courts order a debt repayment plan that uses their income to gradually pay off their debts. In Chapter 13 repayment plans, certain debts must be paid in full, and these are termed "priority debts." Included in this group are things like taxes and child support payments. Payments on secured debts-as with vehicles or homes-must also be included in the repayment plan.

In some cases, people need to convert to Chapter 7 bankruptcy because they are unable to afford the payments. Sometimes people lose their jobs while in bankruptcy and

Fewer businesses filed for bankruptcy last year. In 2011, 34 businesses filed Chapter 11 filings, which is down 11 from 2010.

There is no doubt that people continue to struggle, despite the decreasing number of bankruptcy filings. Those who feel they may need to apply for bankruptcy should speak with an attorney to determine the best course of action.

Source: memphisdailynews.com, "Drop in Bankruptcies Belies Economic Picture," Aisling Maki, January 20, 2012.

Bankruptcy: chapter 7, chapter 13 and credit cards

2012-01-19T21:26:54Z

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.

]]> The basic difference between chapter 7 and chapter 13 bankruptcy is that the latter is geared toward reorganization and repayment, whereas the former is focused on liquidation.

In chapter 7, the borrower is relieved of most unsecured debts. One thinks of credit cards. One of the downsides of chapter 7 is that bankruptcy filings remain on one's credit report for 10 years after completion. Chapter 7 bankruptcy looks unsightly on a credit report, which is a downside.

Chapter 7 bankruptcy, which involves setting up a court-supervised repayment plan, will also remain on one's credit for 10 years, but it doesn't look quite as bad as chapter 7. Still, the effect on one's actual credit score will be the same.

One of the big challenges coming out of bankruptcy will be obtaining a credit card. In a Chapter 13 case, the trustees administering the case must grant permission for a credit card, and then a lender. Many companies offer credit cards to people with bad credit, so it should be too terribly difficult. Still, one should proceed with some caution, as credit can get folks into trouble if not used wisely. When used carefully, it can help your credit score recover more quickly.

Source: creditcardguide.com, "Bankruptcy Choices: Chapter 7, or Chapter 13," Erica Sandberg, January 12, 2012.

"Undue hardship" a tough standard to show

2012-01-17T21:24:50Z

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 order to prove undue hardship, many courts require that the debtor cannot maintain a minimal lifestyle for either self or dependents, that those circumstances are unlikely to change for a large portion of the repayment period, and that the debtor has made a good faith effort to repay the loans.

In reality, those requirements will apply to very few, making the possibility of discharging student loans in bankruptcy quite slim. Still, there are certainly individuals who will be able to take advantage of discharge.

Another thing to keep in mind is that certain types of federal loans are not dischargeable. To find out whether a federal loan is dischargeable, you can contact the Department of Education.

Source: Online: http://www2.ed.gov/offices/OSFAP/DCS/loan.cancellation.discharge.html; Federal Student Aid; gives overview of loan cancellation and discharge.

Should private student loans be discharged in bankruptcy? P.2

2012-01-12T17:13:46Z

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.

]]> In terms of contraction of the private student loan market, the author points out that there would in fact be beneficial consequences to this on several levels, including a shift in the market pricing of higher education and perhaps even a limitation on federal funding of for-profit colleges.

It isn't clear whether any of the present bills proposing discharge of student loans has a strong chance of making it through Congress, but it is clear that there are many people struggling with major debt. That debt includes student loans, medical expenses, and credit cards bills.

One thing that can't be argued is that bankruptcy is never an easy decision to make. Even for those to whom it brings great financial relief, there is the financial rebuilding that must take place afterward. While it is possible to get back on one's feet and have financial freedom, it is a difficult task that requires discipline and patience.

Source: Forbes, "Student Loans and Bankruptcy-The Debate Continues," Peter J Reilly, January 10, 2012.

Should private student loans be discharged in bankruptcy? P.1

2012-01-10T17:06:33Z

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.

]]> As the article points out, there are presently bills in both the House and Senate proposing to allow bankruptcy for private student loans. But two major objections to these bills are that passing such a law would set the stage for widespread abuse of the system, and that passing such a law would cause a contraction in the private student loan market.

According to the author, there is no historical data to support these objections. As he points out, today's bankruptcy laws are actually much more stringent with respect to discharge of student loans than they used to be, and the fear that large numbers of people will take advantage of the system is shortsighted.

In our next article, we'll continue with this topic.

Source: Forbes, "Student Loans and Bankruptcy-The Debate Continues," Peter J Reilly, January 10, 2012.

Liquidation is integral to Chapter 7 bankruptcy process

2012-01-06T17:40:45Z

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.

]]> Certain property in Chapter 7 bankruptcy will be considered "exempt," allowing the debtor to protect some property from the claims of creditors. Federal law provides for certain exemptions, and many states have additional or alternative protections.

The person in charge of administering the bankruptcy case and liquidating nonexempt assets is the U.S. trustee. If all the debtor's assets are exempt of subject to valid liens, the trustee usually files a "no asset" report with the bankruptcy court and no distribution is made to unsecured creditors. Many if not most chapter 7 cases involving individual debtors turn out as no asset cases. If the case involves assets, though, unsecured creditors have 90 days to file claims, though government units have 180 days.

The trustee has the task of liquidating nonexempt assets so as to maximize the return to the debtor's unsecured creditors. This is done either by selling the debtor's property or by making use of other trustee powers.

Liquidation is a detailed process with many specific rules governing every aspect. This is only an overview. Most people hire an attorney to help them work through the ins and outs of bankruptcy, which can be difficult to understand without professional help.

Source: Online: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx; U.S. Courts website; gives overview of Chapter 7 bankruptcy.

Rapper may have to give up trademark on name as part of liquidation

2012-01-04T17:32:11Z

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.

]]> The trustee in charge of Brown's estate has said she plans to sell the trademarked name "Young Buck" along with the rapper's other assets. Brown has said that the move is frustrating his attempts to sign with a new record label. Brown has said he was close to signing a recording deal with New Orleans-based Cash Money Records.

As of now, creditors have submitted 22 claims, totaling to $11.5 million, in connection with Brown's bankruptcy case. That includes a $10 million claim by the record label G-Unit Records stemming from a contract dispute.

Also among the multiplatinum recording star's debts is child support and federal taxes.

No doubt, liquidation can be a difficult aspect of the Chapter 7 bankruptcy process. Many things that have been part of one's identity might need to be let go. Liquidation can also be a great blessing, though, for someone who is financially distressed.

Source: Washington Post, "Rapper Young Buck faces losing his trademarked name in bankruptcy case in Nashville," December 23, 2011.

Capital One criticized for its dubious debt collection practices, P.2

2011-12-30T18:25:14Z

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.

]]> Interestingly, debt collection can be a lucrative business. Some companies will pay nine cents on the dollar for debt recovery. Many debt collection companies, though, are careful about purchasing bankruptcy-related debt, as there are firms and attorneys out there that are aggressive in pursuing illegal payments.

Bankruptcy is a difficult thing to go through for indebted consumers. You don't get there without first going through a lot of financial struggle. Debt collectors who add to the struggle by pursuing illegal payments should feel the consequences of their actions.

With roughly 1.4 million Americans filing for Chapter 7 or Chapter 13 bankruptcy in the last fiscal year, more people are potentially exposed to this kind of treatment by debt collectors.

Source: Wall Street Journal, "Debts Go Bad, Then It Gets Worse," Jessica Silver-Greenberg, December 23, 2011.

Federal agency considers plan to assist homeowners in bankruptcy

2011-12-23T17:25:17Z

Bankruptcy, as we discussed in our last two posts, is something struggling homeowners sometimes turn to in order to get a better handle on their finances and keep their home.

A recent Reuters article notes that Fannie Mae and Freddie Mac are currently consider whether to allow homeowners to reduce their outstanding mortgage debt during Chapter 13 bankruptcy. Details of the proposal were reportedly spelled out in a letter to Congress on Monday.

]]> The Federal Housing Finance Agency is currently reviewing the proposal, which would require the mortgage financing companies to permit homeowners that owe more on their mortgage than the current market value of the home to pay no interest on their mortgage for five years.

According to the Financial Times, participation in the debt reduction program would have to be approved by bankruptcy judges.

A spokeswoman from the Federal Housing Finance Agency has confirmed that there is currently discussion about the proposal, but she didn't give any further details. The White House, on the other hand, has said that the proposal is not currently under consideration.

White House spokeswoman Amy Brundage noted that, while the Obama Administration is always discussing with the Federal Housing Finance Agency ways assist struggling borrowers and bolster the housing market, it will not be looking into the agency's proposal.

Fannie Mae and Freddie Mac, along with the Federal Housing Administration, currently account for roughly 90 percent of all U.S. mortgages. If put into effect, such a proposal would, no doubt, be helpful to many struggling homeowners.

Source: Reuters, "Regulator considers mortgage debt reduction for bankruptcy: report," December 20, 2011.

Will I keep my home if I file for bankruptcy? P.2

2011-12-21T17:22:41Z

In our previous post, we began looking at the topic of filing for bankruptcy in order to prevent or forestall foreclosure. We noted that there are a number of considerations to keep in mind before doing so. We have already discussed some of the considerations with respect to Chapter 7 bankruptcy.

In terms of Chapter 13 bankruptcy, one of the biggest things to keep in mind is that since Chapter 13 bankruptcy establishes a repayment plan, there are more options with respect to how secured creditors are dealt with than in Chapter 7 bankruptcy.

]]> In many cases, Chapter 13 will allow a borrower to cure a default in a mortgage by, among other possible means, paying an extra amount each month to be applied to the arrearage owed on the day of filing. In such cases, the borrower will typically be able to discharge some of their unsecured debt through the bankruptcy and will still not have sufficient income to pay more to their mortgage lender.

Chapter 13 bankruptcy can also involve a court-supervised loan modification in cases where the borrower has problems communicating with the loan servicer. This can allow the borrower to keep their home.

Chapter 13 bankruptcy also allows borrowers facing foreclosure to fully discharge a second mortgage if the value of the property has declined so that there is no equity left for a second lien holder. The borrower will not, however, be able to reduce the balance of a first-lien mortgage loan.

In Chapter 13, other unsecured debt will be fully discharged and the borrower will only have to pay a relatively small percentage of what they owed. This allows the borrower to come out of bankruptcy with a relatively fresh start. This will make it easier to afford mortgage payments going forward.

There are a number of way bankruptcy can help you keep your home, but the decision to file should always be thought through seriously, and with the advice of an experienced attorney.

Source: Forbes, "Going Bankrupt in 2012, but Keeping Your Home," December 8, 2011.

Will I keep my home if I file for bankruptcy? P.1

2011-12-15T20:16:27Z

Losing your home is a scary possibility. If you are in that situation, know that you aren't alone. A recent Forbes article points out that millions of Americans currently face the possibility of foreclosure in 2012, despite recent improvements in the unemployment rate and government attempts to remedy the situation.

As many of our readers know, filing for bankruptcy is something that can give struggling homeowners a bit more time to get their bearings on their financial situation. Of course, filing for bankruptcy brings its own challenges and drawbacks, but it certainly can delay bankruptcy. For many, that may force a mortgage lender or servicer to negotiate, not to mention discharge a good deal of unsecured debt.

]]> As should be obvious, filing for bankruptcy should never be taken lightly. One of the important factors to consider is whether your major assets are considered exempt under state law. Every state has its own laws regarding which assets are and are not exempt from liquidation in bankruptcy.

There are further considerations depending on the type of bankruptcy involved.

Chapter 7, also known as liquidation bankruptcy, involves the sale of nonexempt assets in order to pay creditors a portion of what they are owned. A good many Chapter 7 filings are cases in which all the consumer's assets are exempt. In such cases there are no distributions to creditors.

In general, filing for Chapter 7 bankruptcy will typically buy you several more months in your home. The reason is that the mortgage lien holder has the option of either waiting for the bankruptcy process to be completed when the stay on foreclosure runs out or requesting the court to allow the foreclosure to proceed. The reason for the latter option is that bankruptcy does not actually discharge the lien on the property, which means the lender is still able to foreclose.

In our next post, we'll continue with this topic.

Source: Forbes, "Going Bankruptcy in 2012, but Keeping Your Home," December 8, 2011.

What is the role of the U.S. Trustee in bankruptcy cases?

2011-12-13T20:14:05Z

Our readers may have run across the term U.S. Trustee when reading about bankruptcy and wondered what exactly the Trustee's role is in bankruptcy. The answer depends slightly on the chapter under which bankruptcy is filed.

In Chapter 7 bankruptcy, the U.S. Trustee's role is to impartially administers the case and liquidates the debtor's nonexempt assets. The trustee is also responsible for filing appropriate reports to the court.

]]> The trustee's primary job, however, is to liquidate the debtor's nonexempt assets in such a way that returns to the debtor's unsecured creditors are maximized. Nonexempt property is sold if it is free and clear of liens, or if the property is worth more than any security interest or lien associated with it and any exemption the debtor holds in the property.

The trustee is also able to attempt recovery of money or property from credits in certain situations. This allows the trustee to set aside "preferential transfers" to creditors made within 90 days before the petition was filed, the ability to undo security interests and other transfers in some situations and to pursue certain other claims such as fraudulent transfer and bulk transfer.

Our regular readers know that Chapter 13 differs from Chapter 7 in that the former establishes a repayment plan. Debtors are paid back over an established period of time. Any debt remaining after those payments are completed is discharged, if all requirements are met. In Chapter 13 cases, the role of the trustee is to evaluate the case and serve as a disbursing agent, collecting payments from the debtor and making distributions to creditors.

Debtors work closely with trustees in bankruptcy cases, and so it is good to be aware of their role if you are contemplating filing for bankruptcy.

Source: Online: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx; United States Courts website; gives an overview of Chapter 7 bankruptcy.