Bankruptcy filings are down but they will rise after October 2013 when people realize that they can file again

bankruptcy 5Bankruptcy filings are down significantly across America.  I wrote about this in a previous blog.  Some areas have seen a drop-off of as much as 50% in the numbers of filings.  There Courthouse 2are many reasons for this.  One reason is that most homes that were in foreclosure after the recession began have now been dealt with one way or another.  Household debt is also down and household debt has always been an indicator of how many bankruptcies will be filed.

Some economists believe that there will be another wave of foreclosures that the banks have been holding off foreclosing until there are signs of an economic recovery.  But there is another factor out there that will hit this October.  In October 2005 millions of Americans filed for bankruptcy in order to get their filing done prior to the 2005 bankruptcy law change.

Bankruptcy underwent a major change in 2005 designed to make it harder for debtors to file a chapter 7.  As it turned out most people could still file even with the new “means test” that was added in the new law.  But the 2005 bankruptcy law change scared people into thinking that bankruptcy was not going to be an option so they had better file now.

So millions did and many of them probably should not have.  But after 2005 the country went through a major recession.  Jobs were lost, foreclosures were up, and debts could not be paid.  But one aspect of the new law was to increase the time between bankruptcy filings from seven years to eight years.

We are now about to reach the eight year mark in October 2013.  This means that if you filed bankruptcy before the law change in 2005 (and maybe didn’t need to) you can file again in October of this year (2013).  It is now okay for you to file again so if you need to contact an attorney about filing a second time.  Don’t worry about having to do it it’s okay.  No one could foresee the terrible recession of 2008 and it probably has left you will a lot of debt that you have not been able to pay.  Bankruptcy will again take care of this debt once and for all giving you a fresh start.

I am a San Diego bankruptcy attorney.  For further questions please visit my website at www.farquharlaw.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for free credit report and analysis!

For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Bankruptcy photo courtesy of Stockmonkeys.com.  Courthouse photo courtesy of Robert Linder.

Can I file bankruptcy a second time? Yes, and with stubbornly high inflation, unemployment rates, and the housing crisis you might well need to!

economy 2If you want to file for bankruptcy a second time you just have to wait the required eight years since the last time you filed.  Don’t Guess Againworry it goes by quickly!  Many people find that they get into the same situation as they were in before after eight years have gone by.  The country’s unemployment situation does not appear to have improved, the price of everything is going up as inflation worsens, and the nation’s housing crisis continues. (See here for additional reasons for why you should file for bankruptcy).

I read an article yesterday that gas prices have increased by over 80% in the last three years.  Many food prices have increased by 20% in the same period but the government uses an inflation measure that excludes food and energy prices so their statistics do not reflect real inflation.  This seems ridiculous because food and gas are the items that people buy the most.

With our astronomical 15 trillion deficit many of us believe that massive inflation is coming for America which will render our currency increasingly worthless.   I heard a story the other day about inflation in the Wiemar Republic in Germany in the 1920s.  There the cash was so worthless in 1920s Germany that crooks stole only the wheelbarrows that people carried the cash in and dumped the cash in the street.

Unemployment is also staying high and is also under counted by the government. We are told that unemployment is declining but we also find out that increasing numbers of people are leaving the job market altogether and are thus not being counted in government statistics.  We apparently have the lower number of adults working in America that we have ever had before in our history. (See here for my blog on the unemployment is rising because people are leaving the labor force).

As we have known all along many people are giving up on finding a job and are either living off the government or are living on money earned under the table and off the radar.  These people usually are surviving on such little money that they should be counted as at least underemployed if not as unemployed.  This many unemployed people not being counted makes the unemployment situation look far better than it really is.  I hate to say it but it appears that the government has an agenda to advance in these statistics on inflation and unemployment and these government supplied numbers should therefore be questioned or ignored.

The housing crisis also seems to have no bottom.  Houses are still being foreclosed in in great numbers and thus housing prices are not rising in some areas and still falling in others.  Many are facing an iminent foreclosre of their home due to this crisis in real estate and the realtors I talk to say they don’t see any end in sight for this.  With the glut of foreclosed homes on the market the prices of homes will not increase again for some time.  Many who are unemployed cannot afford to pay their mortgages now.

unemployment 4Many people believe that with our massive debt at the federal, state, and local levels we are headed for financial collapse.  I don’t know if a massive collapse is coming but it’s clear that massive inflation and continued high unemployment are a distinct possibility.  Collapse has happened before in history with the Wiemar Republic and with other societies that failed to get their debts in order.  If we are headed for these increasingly difficult economic times then it would certainly be easier to enter them without a tremendous debt load.  Bankruptcy can accomplish that.

If massive inflation comes will help pay down the government’s debt but it will devastate individuals and families financially as it dramatically increases the prices we pay for everything.  If unemployment remains high too then many people will continue to have medical, credit card, auto repossesssion, and other personal debts they  pay.  Many will continue to borrow on their credit cards as they have in the past out of necessity and not irresponsibility.

If any of this sounds familiar then you might want to consider filing bankruptcy.  Don’t be like the government and put you head in the sand.  Deal with your debt in a responsible, legal, and ethical way which is what you get with a bankruptcy discharge.  You can also significantly slow down or stop your home being sold at foreclosure with a bankruptcy.

All of this debt, unemployment, and foreclosure will lead many individuals and couples right back into a situation where they cannot pay their debts.  Once they stop paying these creditors the phone will start ringing again 24 hour a day from collection agents who ceaselessly try to collect these debts.  The result of this will be more people will need second time bankruptcies.  So don’t despair if you have accumulated debt in the last number of years because you can file bankrupty again.

If you filed in 2005 like millions did to avoid the bankruptcy law changes then you will be able to file next year in 2013.  You only have to wait eight years.  If you filed in October of 2005 like many did the you should look to file again around October of 2013.  Remember that millions of individuals are in the same position as you are so don’t despair.  Just call a good bankruptcy lawyer now and he will help you survive financially until the eight years has elapsed.

There are many strategies for managing these debts in the mean time including paying them something to get them off your back.  A good lawyer will help you manage you finances until the date arrives that you can file for bankruptcy again.  For an update on filing bankruptcy a second time see here.

I am a San Diego bankruptcy attorney.  For further information please visit my website at www.freshstartsandiego.com or www.farquharlaw.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

The economy is so bad photo courtesy of Mark Holloway.  Guess again photo courtesy of Damian Gadal.  Unemployment photo courtesy of Sean MacEntee.

Private student loan debt is unfortunately not dischargeable in bankruptcy, but it should be!

There is a problem in this country with student loan debt.  I have blogged about student loans here and here and how student loan debt is increasing every year.  Many believe that it is going to be the origin of the next financial crisis or at least the factor that prevents any economic recovery to occur.  Outstanding student loan debt has topped $1 trillion and is still rising every year.  It is clear that this debt will have profound effects on the economy if it is not dealt with.

But student loan debts comes in two types.  The “old” type of student loan debt is government backed student loans.  These are loans backed by the U.S. government (ie taxpayer).  These are loans that government agencies back or give out and these loans have been historically non-dischargeable in bankruptcy as is the case with most debts owed to the government.

But along came BACPA in the year 2005 which created a sweeping reform of the bankruptcy laws and gave us things like the “means test”.  In that 2005 law private student loans were added to the list on non-dischargeable debts.

Years ago, before 2005, I  remember advising people that we could discharge their debts for truck driving schools, hair and nail academies, and other school debts if the the money lent came from a strictly private institution with no government backing or funding.  These loans were far fewer then but could be discharged in bankruptcy.  The lenders of these loans knew of their non-dischargeability and the lenders were therefore careful to whom they lent the money.

Section 523(a)(8)(B) of the new bankruptcy law changed things. Private loans now fell into the category of “any other educational loan that is a qualified education loan” and they were rendered non-dischargeable. Many of us believe that this in turn led to an explosion of these student loans.

With these loans being safe from dischargeability in bankruptcy the lenders went out to push these loans.  They were now after all a good risk.  Debtors would be stuck with them for life and the creditors would get paid back.  According to the PBS special “College Inc.” the schools now got into the act.  They hired recruiters to find masses of students who would sign up for these private degrees.  These masses of students would then attend these private colleges funded by these private loans that were now freely available.

The biggest of these was the University of Phoenix.  I was talked to by a recruiter way back in the 1980s from that “University” so they have been active for some time.  They seemed to have grown substantially more recently though probably due to the availability of this private money.  They and the others then pumped out these degrees to students by the thousands.  Each student then was shackled with a large (non-dischargeable) student loan debt when he or she gets the degree.  This would seem to be such a problem if these students could get a job.

In fact though many of these degrees are worthless.  PBS talks about a nursing school that gave degrees to people who never stepped foot inside a hospital.  Another student took on $200,000 in student loan debt for a doctoral degree from a school without the proper accreditation.  Many of these students never get a job from these degrees that they borrowed massive amounts to fund and many never will because the degrees are worthless and employers know it and don’t hire graduates from these “Universities”.

This new for-profit system of education is a big change in the way have historically educate.  Colleges were in the past non-profit private schools or government schools which were of course non-profit.  These new schools claim they want to change all of that and provide an alternative way of providing education.  But that education or those degrees provided by these institutions must be worth something in that they put heir graduates in line for some occupation.

n the past those for profit schools were smaller and had less students.  I believe it was the 2005 bankruptcy law that in part led to an explosion of these school as it led to an explosion in the money available to finance these schools.  In the 1980s you probably could not get a loan to go to the University of Phoenix.  No private lenders would lend for this as they knew you would bankrupt it away when you got out and could not get a job.

Burt when the law changed and the debts would last forever the became a good risk for lenders and they pushed the money out.  The schools picked up on this and they advertised this money availability and probably stretched the truth a lot about the employment rates of their graduates.  This has led to the $1 trillion student loan debt situation we have today.

There is a law that is attempting to address this but I will save you the trouble of looking it up or hoping it will pass.  I believe if we just go back to making these private debts dischargeable in bankruptcy the money available to fund these schools would tighten up considerably.  The numbers of students would then shrink drastically and so would the graduates. This would certainly help their employ-ability as their would be less of them and if students couldn’t get a job from one of these degrees then bankruptcy would remain an option.  Bankruptcy is usually better than paying for student loans forever when you can’t get a job.

I am a bankruptcy attorney practicing bankruptcy law in San Diego.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis! 

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

What is the means test?

The means test is a provision added to the 2005 Bankruptcy Reform Bill.  Many clients believe that it is designed to throw them out of bankruptcy.  It is not.  It is merely designed to throw you out of a Chapter 7 and into a Chapter 13 bankruptcy because you supposedly have the “means” to pay all or part of your debts back in a chapter 13.  You would therefore not be eligible for a chapter 7.   You are not thrown out of Bankruptcy though as another chapter is available to you.  If you don’t pass the test because you make too much money and you filed anyway they will allow you to convert the case to a chapter 13.  Check back for my next blog on the differences between a chapter 7 and 13

The means test is a test where you enter your gross monthly average household income for the last six months and you see if you make more money than the average person in your county.  At the time of writing this, the yearly averages for San Diego county are: $47,969 for 1 person in the household, $64,647 for 2 people, $70,638 for 3, and $79,194 for 4.  You get full credit for each child in the house and you are allowed to make extra money for each one.

If you make more than these allowed amounts you go into the means test.  You then deduct all of the allowable expenses.  First there are your taxes, then medical insurance, and union dues that are allowed to be deducted from the total.  You then get “standard” deductions for medical, housing, living and car expenses.  Many people will lose out here because their actual expenses for these items exceeds what the means test allows and then you will often not be allowed to take them even if you actually do spend that much money on those items.

You will be able to take all of your secured creditor payments for mortgages, and cars, and even thing like jewelry,  electronics, and furniture.  Since you are obligated to make those payments (or lose the item you financed) you can get full deductions for these in the means test.  Then there are additional categories for allowed deductions for things like childcare, charity, care of elderly, certain education expenses, among others.

After all of that is deducted and calculated you see if you pass the means test.  I do it all on software that calculates it for me and tells me if you pass or not.  This test should be done first thing in the Bankruptcy case if there is a situation where a person or a family earns a fairly high income.  The means test looks back six months to see what your average income was in that period so if you just lost your job you may have to wait to file so that you 6 month average income will decline.

The means test is a somewhat complicated test and it is best to have an attorney do this for you and advise you of options if you fail it.  If you are going to get a raise though you might want to file before your income increases so you can get you chapter 7 discharge.

Don’t despair though as most Bankruptcy lawyers are used to dealing with the means test and they (and good software) can guide you through it.

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.

I am a bankruptcy lawyer in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.