Man Arrested by U.S. Marshals For Outstanding Student Loan of $1,500

6227036996_77501c3a14_bA man was arrested recently in his Houston home by U.S. Marshalls for failure to completely pay the government for a small amount owed on a student loan.  Most student loans are backed by the U.S. government so when you don’t pay them you apparently now get to see the U.S. Marshalls at your door with guns drawn.  You don’t need to owe the U.S. government very much.  The man in question only owed $1500.

Paul Aker of Houston came outside slowly with his hands up and he was arrested by the marshals who had surrounded his home.  He said he did not have any idea why he was being arrested until he was in the car on his way to jail where the marshals revealed that he had an outstanding student loan debt.

Mr. Aker had actually paid off two student loans in the past and he believed he did not owe any more to the government.  The arresting agents asked him if he was in the habit of stealing from the U.S. government.

The U.S. Marshalls did release a statement explaining that it is their duty to serve federal process and to make arrests and they had apparently contacted Mr. Akers by phone to get him to appear in court and he refused.  It would have been a good idea for him to go to court before this unfortunate incident because he was forced to pay the government back for the cost of his arrest ($1258.60) in addition to the delinquent loan with interest.

They did “allow” him to pay off the debt in $200 monthly installments but I would ask what happens if he stops paying the monthly amount?  Do more armed agents show up at his door and arrest him again?  Most of my clients can’t afford such monthly installments and therefore they don’t continue to pay them.  Indeed in chapter 13 bankruptcies most debtors fall out of their chapter 13 plans for failure to pay.

I have written in the past about people being arrested and sent to debtor’s prison for unpaid debts but that is rare in America and it is not done at all in most states.  Debtor’s prisons were supposed to be completely outlawed in the 1800s.  The federal government appears to be the worst creditor of all to owe as their full military and police power can be turned against a person for some small student loan as we see here.  For many years similar heavy handed tactics have been reported to have been used by the IRS for unpaid back taxes.  With a private non-student debt you would not see anything like this.

Unfortunately there is not much bankruptcy can do for people with student loan debts.  Currently student loans cannot be discharged in bankruptcy (unless there is “extreme hardship”) though we attorneys are hoping that someday that law will be changed to allow people to escape these debts if they cannot pay them.  In America there is something like $1.2 trillion owed in student debts and no politician has yet done anything about it.

In the mean time I think it is a good idea to avoid these student loans wherever possible.  They last forever, they cannot be discharged in bankruptcy, and someday a tragedy could occur when an overzealous marshal pulls a trigger and possibly ends a person’s life for a few delinquent student loan dollars.

For those that already have the loans I would suggest you stay in continual contact with some representative of the government to work out whatever deal you can with them just like you would with the IRS.  If you do not you might have the misfortune of seeing armed federal agents surrounding your house who will place you under arrest and make you appear before a federal judge.  Let’s hope that someday the law will be changed and student loans will become dischargeable in bankruptcy even if the student debt has to be 10 or 20 years old before it is eligible for discharge.

Photo by a.mina from Flickr

 

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.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.

 

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Ashamed to file bankruptcy? Afraid of doing something wrong or worse, stealing? Forget that, get your fresh start!

ashamed 2 I have had many clients who are ashamed to even talk about the possibility of being bankrupt and are therefore extremely reluctant to file for ashamed 3bankruptcy even if they desperately need to.  These clients may have a huge debt load that they cannot pay where they are having trouble even paying the interest on the debt.  They may have had credit cards they charged up and maxed out, or automobiles that were repossessed with huge deficiency balances owing, or they may have medical debts that are high.

In addition these debts may have been sold to collection agencies.  This means that the collection “experts” have purchased these debts and they are now motivated to collect them.  The collection agents are experts because they are mean and angry and demanding and even threatening.  Like the terminator machine in the movies they have one goal in life.  This is to get as much money out of you as quickly as they can.

The collection agents believe nothing you say because they assume you are lying and even if they did believe you they do not care about anything you say.  They want your money now and they will pull out all the stops to get it.  The only way to stop them is to pay them or through filing a bankruptcy.

Many of  my clients are unemployed because they were laid of or they may be underemployed because they are now working part-time.  These people may have a job currently that pays far less than the one that they had when they incurred the debt in the first place.  In addition they may have had medical procedures that they had no insurance for at the time that is costing them far more than they can possibly afford.

All of this can be occurring in my clients’ lives yet some of them are still holding back on filing a bankruptcy.  They still think that some miracle will occur that will help them pay and they do everything they can to resist a filing.

I believe people avoid bankruptcy because of the stigma that bankruptcy carries and has carried for some time.  In the 1929 stock market crash people jumped out of windows to avoid what they believed to be the shame of bankruptcy.  People still believe that bankruptcy carries shame and signifies failure of some kind and as Americans we hate failure and we wrongly believe that it is always bad.

But things have changed considerably.  Bankruptcy is not bad as many think now or ever.  Corporations file bankruptcy regularly and reorganize and then continue to function.  Even towns and cities do this and they can continue to carry on.  There is nothing dishonest or immoral about this whatsoever for them or for you.

You also can file bankruptcy, discharge your debts, and reorganize like a business or municipality.  There is no shame and no disgrace to this.  In fact it is usually the moral and legal and best thing to do when you cannot pay your debts.  It frees you and the creditor from the charade that someday you will pay the debt.  You can move on and the creditor can now write off the debt as uncollectable and take a deduction on his taxes.

In fact part of bankruptcy law is the concept of you the debtor getting a “fresh start”.  Bankruptcy laws themselves that have been with us for hundreds of years contain the fresh start language.  This is because bankruptcy was not created to cause humiliation or to put a sense of defeat into people.  It was created to liberate people and businesses, and later municipalities from the crushing effect of debt which cannot be paid by anyone.

Once freed from the debt an individual or entity can utilize the fresh start by starting anew and carrying on without the previous debt burden.  The psychological boost one can receive from a bankruptcy discharge is tremendous.  I know because my clients regularly tell me so.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.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.

 

Couple photo courtesy of Justin maier.    Polar bear photo courtesy of thelearnr.

Are gambling debts a problem in bankruptcy?

gambling 3The short answer is that they can be.  In general the bankruptcy trustees who oversee your case seem have the opinion that gambling 4gambling debts are somehow frivolous, shady, or just not respectable and thus possibly not eligible for a bankruptcy discharge.  The same trustees don’t blink an eye at credit card debts as long as they are aged (more than one year old) but they do seem to have something against gambling debts.

I believe that it is a belief that somehow gambling is not the type of debt that the bankruptcy system was designed to discharge.  You are somehow acting irresponsibly in the eyes of a bankruptcy trustee if you engage in gambling and you borrow money to do so.

But wait a minute that is not the end of the story!  The judges don’t always agree with them.  Bankruptcy was designed to give debtors a fresh start and a relief from debts the cannot pay.  Those debts come in many types and gambling is just another type of debt.  They too should be dischargeable in bankruptcy.

I had a case years ago where a client had gambling debts and the trustees raised an objection to their discharge so I looked up what the judges at that time had ruled.  To my surprise they seemed far more understanding than the trustees.  The judges pointed out in a series of cases that gambling is a legal activity.  Not just in Las Vegas but in casinos around the country.  Here in San Diego we have many Native American casinos that are fully legal.  Millions go each year to these casinos and legally gamble.  There simply is no illegality about it.

If a debtor engages in an entirely legal undertaking then we can’t deny a debtor’s right to engage in it as well as borrow money to finance it like he would a car or clothes that he was buying.  So if the debtor accumulates debt related to the gambling then that really is no different from him running up his credit cards for some other item.  This is what I understood from reading a number of cases on gambling a few years ago.

There were a few caveats though.  The debtor with gambling debts could not have run up his credit cards in anticipation of filing bankruptcy.  One judge referred to this as a credit card “bust out” scheme.  If this was the case then that could be seen as credit card fraud.

Credit card fraud occurs when a person borrows (charges) on a credit card with no intention to repay.  That is why if you run up credit cards and then immediately file bankruptcy you probably will have a credit card fraud problem.

When you sign your card you signed that you will borrow money on the card but you have an intention to pay it back.  That intention can change later though and you can find yourself in a position where you cannot pay.  At that point you stop paying and possibly file bankruptcy.

The gambler then is just like the guy who charges consumer goods on his card except he gambles.  As long as he believes he will eventually win and then pay the car back then there is no fraud because fraud is subjective.  We may look form the outside and say that he will never win at gambling.  His chances are great that he will lose.  But if the gambler believes honestly (but unreasonably) that he will win then there is no subjective fraud.

So it is best to wait for some time after a debtor borrows money on a credit card to gamble.  It will then look less like the debtor had any fraudulent intent.  Any questions about gambling debts and bankruptcy should be directed to a knowledgable attorney.

Don’t forget that there is the gambling addiction problem too.  It is possible that a debtor has an addiction to gambling.  If the debtor is in treatment for this addiction and has ceased all gambling there is a possible argument there to counter any fraud charges.  A good bankruptcy attorney can help you with these arguments.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.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.

 

Risk Free photo courtesy of Sean MacEntee.  Roulette wheel photo courtesy of Zdenko Zivkovic.

What is a chapter 20 bankruptcy?

twentyIt is really just one bankruptcy followed by another.  It is a chapter 7 followed by a chapter 13 which added together equals 20 so it is called a “chapter 20”.  Most people have heard of bankruptcy chapters 7, 11, and 13 but a chapter 20 is really just a combination of a 7 and a 13 and there is no official chapter 20 that you can file.

In a chapter 20 bankruptcy someone will first file a chapter 7 and get a discharge.  They then decide some time later to file a chapter 13 bankruptcy.  A chapter 20 is sometimes referred to as a “no discharge chapter 20” because the debtor is not entitled to a discharge in the chapter 13 if he filed it within 4 years of his chapter 7 according to section 1328(f) of the bankruptcy code.

One reason why people file a chapter 20 is because of the debt limits of a chapter 13.  Some want to file a chapter 7 to discharge the unsecured debt they owe to bring that debt within the limits of chapter 13.  Chapter 13s have specific debt limits and if you exceed them you could be forced into a chapter 11 which is far more complicated.  One strategy to avoid a chapter 11 is to file a chapter 7 to lessen the debt through the chapter 7 discharge and then do a chapter 13.  This would be an example of a “good faith” reason to file a chapter 20.

Another common reason why they would want to file a chapter 20 is because of the chapter 13 lien strip capability not offered in a chapter 7.  In a chapter 13 homeowners can strip (eliminate) second mortgages if they are completely unsecured.  Second mortgages are completely unsecured if you owe more on your first mortgage than the entire home is worth.  This leaves nothing (no equity in the home) to secure the second mortgage so it is in effect an unsecured debt.

But of course it is a lien that exists and will continue to exist on your house if you do nothing or even if you file a chapter 7 bankruptcy.  The lien will remain on you home virtually forever and the only way to get rid of an unsecured second mortgage it is to strip it off in a chapter 13 bankruptcy.

So some people try to get rid of their credit cards in a chapter 7 bankruptcy and then file a chapter 13 to strip the second mortgage.  If they just filed a chapter 13 without the prior chapter 7 they would have to pay some of the credit cards back in the chapter 13.  So it seems that filing a chapter 7 followed by filing an immediate 13 makes sense right?  After all you save all of those credit card payments you would have to make for 5 years in a chapter 13 right?

Wrong!  You cannot be seen to be manipulating the system just to get rid of your credit cards and then strip a mortgage.  This would be an example of a “bad faith” bankruptcy filing and this would be challenged by the bankruptcy trustees in an adversary proceeding.  If you file one chapter and then another to create a benefit for yourself that would not exist in either chapter then that could be considered bad faith.  So you must not attempt to merely get a credit card discharge and then apply for a lien strip.

This tactic would be considered bad faith because if you filed a chapter 7 you would not be allowed the lien strip.  If you filed just a chapter 13 you would have to make payments to the credit cards for the length of the chapter 13 plan.  The courts will want you to pick one or the other but no both chapter in succession merely to seek maximum benefits.

One way to avoid a possible bad faith challenge to your chapter 20 is to show that there has been a subsequent change in your situation since the filing of the chapter 7.  If for instance you intended to surrender your house at the time of filing the chapter 7 but your situation substantially changes after your chapter 7 discharge then you may have a valid new reason to keep your home.  You could get a divorce or suffer a lessening of income for instance.  Then you could possibly do a chapter 13 to strip the second mortgage and this could prevent a bad faith challenge.  Courts examine chapter 20s carefully though so you should be aware of this increased scrutiny over your case when you attempt one.

It is also possible that housing values change and your second mortgage might become unsecured sometime after your chapter 7 discharges.  If you are in a period where housing values are declining then the value of your house may drop below the value of your first mortgage sometime after your chapter 7 is complete.  Now you can strip the lien in a chapter 13 whereas before you filed the chapter 7 you could not.  This would be a valid circumstance that could defeat a bad faith claim.   There are many other possible good faith circumstances in addition to these mentioned above.

Chapter 20s used to be more common.  Doing a chapter 20 became a problem after the 2005 bankruptcy law was passed.  This law can be interpreted to not allow a chapter 13 discharge unless 4 years have passed since the filing of a chapter 7.  (A second chapter 7 cannot be filed until 8 years have passed since a first chapter 7).  This prohibition is contained in section 1328(f) of the bankruptcy code which relates to discharge.

With this code section in mind the question then becomes how can you receive a discharge from your second mortgage after the chapter 13 plan is completed if section 1328 disallows such a discharge?  This can create problems for you as you proceed with the chapter 20 bankruptcy.

Most courts have maneuvered around this by turning to other sections of the code and they have allowed you to do a chapter 20 anyway.  Remember though that the possibility is still there that you will get a challenge if you attempt to do a chapter 20.  It appears that at this time the law is not completely settled and the courts are not in complete agreement on this issue of allowing a chapter 13 within four years of filing a chapter 7.

It also appears to help if new debt exists.  If some sort of new debt has been acquired post chapter 7 judges apparently like that.  It seems as if there needs to be something to make payments on in the chapter 13 and not just a lien to strip.

Bt I still believe that the safest thing to do though is to not run afoul of section 1328(f) at all.  Just wait the required 4 years after your chapter 7 to file a chapter 13 and strip your lien.  You then won’t be in violation of 1328 and there should be no argument to stop you from filing.  Nobody wants to buy a court challenge or court case when filing bankruptcy.

The additional advantage of waiting the full four years to comply with section 1328 is that it is a longer period in which to argue changed circumstances.  It is harder for anyone to argue bad faith if you waited a full four years after your chapter 7 to file a chapter 13.  This is because people don’t generally plan that long in advance and circumstances do naturally do change considerably in four years.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.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.

 

Twenty photo courtesy of takomabibelot.

What is a bankruptcy reaffirmation agreement? Do I need one?

contractA reaffirmation agreement is simply an agreement that reaffirms or recreates a contract that has been broken by your chaper 7 bankruptcy.  After you file for bankruptcy all of your previous contractual obligations for things like credit cards, auto loans, jewelry and furniture loans, mortgage loans, and leases for personal or real property go away.  You no longer have those contractual obligations once you pull the trigger and file your case.  If your case goes all the way to discharge then these obligations go away forever.

This is what makes bankruptcy such a powerful tool for people.  Any contract that is difficult, onerous, or they just can’t afford is cancelled by bankruptcy.  This is what gives you a fresh start when it is all over as you can go on in life free from these big contractual balls and chains.

The problem is that some of these creditors have a secured interest in some property you bought from them.  This is not true of credit cards which are unsecured but it is true of cars, boats, jewelry, and furniture as well other types of property you could finance.  Whenever you buy something and make regular payments for it the seller probably took a security interest in the property you bought from them.

Though the contractual obligations owed by you are cancelled in a bankruptcy this security interest gives finance companies certain rights in the property that you purchased.  They can move against the property to repossess it after the bankruptcy case closes (or if they file a motion for relief from stay).

It used to be before the 2005 bankruptcy law change that you could buy a car, go bankrupt, and then continue to pay for and keep the car.  This was called the “ride through”.  You had that right before 2005 and people regularly did this in bankruptcy.  The creditors hated this because you could turn the car in at any time thereafter and be done with it.  Creditors could not then come after you for the “deficiency balance” because the contract was cancelled in bankruptcy.  They would be stuck with only the car of limited value.

So the creditors eliminated this option in the 2005 law.  A case called “Dumont” in the 9th circuit confirmed this and that was that.  Now the ride though option is gone and you must either reaffirm, pay off the balance, or surrender the car.

Even having said this though there is a loophole out there.  Most creditors will allow you to keep the car and pay though they are not obligated to do so because they don’t want people to return cars.  Many bankruptcy filers will not reaffirm and if the car company wants the car back then they will return it.  We call this “let them eat steel” because the finance companies then sell this car at a great loss when the could have had some payments.

Many car companies recognize this fact and they have allowed the “ride through”.  They therefore don’t exercise their legal right to repossession and they allow you to keep the car as long as your payments are current.

But there are those others like Ford and in San Diego the San Diego County Credit Union.  These lenders tend to demand that debtors sign and file reaffirmation agreements with the court or they will pick up their cars.  It appears that they may just want to make a point or scare people into signing reaffirmations.

It gets complicated here but you must at least attempt to get a reaffirmation agreement in the court or the creditors can and some will pick up cars.  Losing the car can be extremely inconvenient for those who want and need the car or for those who recently put down a large down payment.  It is also true that financing a new car can be difficult and costly right after a bankruptcy so sometimes reaffirmations make sense.  (Have your bankruptcy attorney discuss these issues with you when you are considering signing one).

If you go into court and attempt to get a reaffirmation and it is denied for some reason by the judge who does not think it in your best interest then there is still an out.  Many judges will insert special language into the judicial order that denies the reaff. that will prevent any pick up of the car by the finance company.  Consult your bankruptcy attorney in your area as he or she should know which judges do this and he will be sure to request such language into the judicial order.

This is especially necessary if you have one of those lenders who tend to be more demanding like Ford or in San Diego, the San Diego County Credit Union.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.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.

Contract photo courtesy of Steve Snodgrass.

When do I need a chapter 13 bankruptcy instead of a chapter 7?

Chapter 13 bankruptcies and chapter 7s are very different bankruptcies bur both have advantages and disadvantages.  A chapter 7 is good because it is clean and fast.  It discharges debts quickly.  It is all over in 90 days and you can then go on with your life if you qualify for the chapter 7.  Not everyone does qualify though.

Some people are “means tested” out of a chapter 7 because they make too much money to file one.  They have disposable income and thus bankruptcy law says that they must therefore file a chapter 13 bankruptcy if they want to file one at all.  (They would also qualify for a chapter 11 but that is another story).

Others don’t qualify if there is too much equity in their home.  In a chapter 13 they could then keep the home and continue to make payments on it in the 13.  One must always be careful that you do not violate the “best interests of creditors test”.  This is where the creditors have the right to demand that they get as much in a chapter 13 as they would in a chapter 7 liquidation.

The 13 differs from the 7 in that it is a payback plan where the debtor makes payments to the trustee for from 3 to 5 years.  In this period the debtor pays back some or all of his debts.  Most plans pay only a percentage of the debts but some do pay back 100%.  After the payback period is over then the unpaid debts (if there are any) will be discharged.

But why pay back the debts if you can discharge and escape them?  There are many reasons and one is the income limits of a 7 discussed above.  If you exceed these income limits then you cannot file a 7.  Debtors also file chapter 13s to take advantage of the lien strip and the cramdown.  See here for a blog on what is a cramdown?

The cramdown allows you to write down loans to the value of the property and is useful if you have property that is underwater.  The lien strip allows you to strip off or eliminate a second mortgage on a home if it is completely unsecured.  So if you have a home that is worth less than the first mortgage then the entire second mortgage can be eliminated after the 5 year payment plan is over.

Both of these cannot be done in a chapter 7 and if you want a cramdown or a lien strip then the chapter 13 is your chapter.  If your income is too high then a chapter 13 also makes sense.  There is one more advantage though to a chapter 13.  It can be dismissed by the debtor at any time.  Once you file one you are not locked in like you are with a chapter 7.

The disadvantage though is that you are locked into paying a trustee for a period of five years if you want to complete the plan and get a discharge.  Most chapter 13 fail because people can’t make these regular payments for five years to a trustee.  According to one article I read as many as 92% of them fail and are dismissed or converted to a chapter 7.  This is a very high fail rate and this is the reason why most people file chapter 7s.

You can pay a chapter 13 bankrupty off early though if you have the money.  So if you payments are $300 per month and you are three years in you could pay off the remaining two years early and get out of the 13.  Most people though don’t have the money to do this.

You should consult a bankruptcy attorney to see which chapter is right for you.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.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.

What do I do after bankruptcy?

After your bankruptcy is over you can certainly begin enjoying your new life with your debts discharged and you don’t really have much that you need to do.  Your debts are now in the past and your future should be debt free.  There are just a few things that you can attend to:

1) Re-establish credit–  You will want to begin re-establishing credit right away after your bankruptcy.  There is no need to wait and you can certainly begin immediately.  You will want to get new sources of credit.  Loans, either secured or unsecured, that will appear on your credit report are a good way to begin to re-build your credit.  You can buy a car or furniture or anything that you pay off monthly and if you make your payments on time you will get positive points on your credit score.

You can and should also get 3 new credit cards after your discharge.  You should get solicitations from credit card companies right away after your bankruptcy is completed.   You can use these new cards to re-establish credit.  If you do not get solicitations then visit your credit union or bank where you have a deposit account.  They will probably give you credit there.

You can always apply for secured cards too.  These are cards where you give the creditor money and the creditor gives you credit based upon how much money you deposited with them.  These secured cards will report on you credit report just like regular cards so make your payments on time.  Remember also to keep your balances low.

 2) Check your credit report-  You will want to check your credit report after your discharge to see if all of your debts are properly reported as “discharged in bankruptcy”.   Challenge any debt not properly listed.  You can get your credit report for free at www.annualcreditreport.com.

 3) Stay out of debt- Be sure to be careful to stay out of debt.  You do not want to fall back into debt after your bankruptcy is over.  This is a good time to develop new habits with credit.  Use your cards to improve your score but pay the balances each month.  It is a good time to live debt free.  Remember too that you cannot file bankruptcy again for 8 years and you don’t want a second bankruptcy unless it is necessary due to some calamity.

 4) Move on with your life- You can now move on and get a new job or buy and sell property or travel and do anything you wish after your discharge.  You are required to report any large amounts of money you receive after your discharge but only for 6 months.  After that you can do anything you want and you are free of the system (as long as there was no fraud involved in your original bankruptcy).

5) Enjoy your new-found freedom Rmember that you are debt free.  Enjoy your new life!

I am bankruptcy attorney in San Diego.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com for more info. about any of these topics or call me 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

Can I still go to debtor’s prison if I owe money? Look out Charles Dickens, in some states unfortunately it appears that it is happening now!

(My most recent debtors prison blog is found here: http://bit.ly/I2qMO2 .

There are numerous articles posted online that describe cases where people appear to have been put in jail in some states for merely owing  monetary debts.  This can happen to debtors who either owe money to the court or to private parties.  And this has happened in spite of the fact that debtor’s prisons were outlawed federally in 1833.  Most of the states followed suit after 1833 and included clauses in their constitutions prohibiting imprisonment for owing money to someone.

In spite of these prohibitions debtor’s prisons seem to be making a comeback.  There are states where it’s possible to put someone in jail for failure to pay a debt.  I am surprised that lawyers in these states have not put together constitutional challenges to someone who was thrown in jail for such a monetary debt.

According to blog I found online people are languishing in Illinois jails, in Champagne and other counties, for owing unpaid traffic tickets.  A law professor from Notre Dame Law School quoted in the article says that we do have “de-facto” debtor’s prisons because of this practice of jailing debtor’s for merely owing money in spite of constitutional prohibitions even if the money is owed to the state.   According to this law professor this creates a situation where debtors are scrambling to come up with money by any means just to stay out of jail.

An article in the Saint Petersburg Times points out that it costs the jails $53 per day (in Florida) to incarcerate these people who often don’t owe much money.  So the taxpayers pay for the jailing, the judge, and the whole judicial system that wastes time and money trying to collect from these destitute people.  In Florida they have an ominous sounding “Collections Court” that handles these cases and about a third of Florida counties have these courts.  Even in the counties without these courts people are still being jailed for owing money.

According to the Times article it costs the system $62,085 to bring in $80,450 in debt.  Those languishing in jail for these unpaid tickets are certainly poor and often minority but anyone without means can get caught up in this travesty of justice.  How is it still a possibility that you could go to jail for owing money?  Were debtors prisons not outlawed in the 1800s?  Didn’t Charles Dickens inform us 200 years ago about the foolishness of this practice?

The Times article points out that you can be jailed for violating a court order or for failing to make court ordered payments.  So technically they are not being jailed for owing money but it amounts to the same thing.  Jail time is usually given to people who owe spousal and child support but legal experts argue that it is all illegal.

Now there is more and more disturbing chatter on the internet about debtors being jailed for owing a purely private company money.  There are horror stories emerging about arrests made and persons jailed for owing money to private parties.  On such woman was arrested one day, handcuffed, put in a very cold police car, brought to jail and no one told her why for some time while the contents of her purse were unceremoniously dumped in a plastic bag.  She spent a cold night in jail keeping her hands under her armpits for warmth until 16 hours later when she was informed that she missed a court hearing concerning some private debt.

In that case she had missed a court hearing but in Indiana a man faced jail for just failing to pay a purely private debt.  His incarceration had nothing to do with violating a court order.   According to an online article in the Minnesota StarTibune a lawyer challenged the constitutionality of a debtor being threatened with jail for owing a debt.  The appellate judges agreed with the lawyer and he won the case because debtor’s prisons were made illegal in Indiana in the 1850s.

The article in the Star Tribune points out that there is an inconsistency with who is locked up when, and for how much debt, and that all of these things vary from state to state and county to county.  It also makes mention that no one knows how often this happens as no statistics are kept of these incidents.  One man in Illinois was locked up by a judge “indefinitely” for owing $300 to a lumber yard.

Now it seems that the collection agents are influencing the legal system more and more to be more creditor friendly.   Some would say that the collectors are subverting the legal system and using the threat of jail and jail time extract money from people who cannot afford to pay anything towards these privately held debts.

The good news is though that bankruptcy can remove most debts from your balance sheet.  After a bankruptcy discharge you legally no longer owe the debts anymore so no creditor can try to collect on them or try to get you put in jail if you don’t.  Your legal obligation to pay these debts is eliminated.  With debt collectors gaining in power and money and influence this is a very good thing.

In California I know that the courts can threaten jail if you do not attend the court ordered “debtor’s exam”.  This is where a creditor can ask you all sorts of personal questions about your assets and your financial situation.  The courts cannot jail you if you do not pay the creditor in California but they threaten to jail you if you don’t show up for the court ordered exam.

I filed a case for a client the day before his debtor’s exam and he brought his bankruptcy case number to the debtor’s exam.  The other attorney did not know what to do but the judge threw the whole case out right there and told her to go to bankruptcy court for any money.  My client had nothing and the creditor had no reason to declare his debts non-dischargeable so that is the last we ever saw of the creditor.  My client got his discharge without a problem.  Bankruptcy is indeed a powerful mechanism to defeat over-zealous creditors.

You almost always don’t have to argue whether you owe a debt after bankruptcy and you don’t have to argue whether any punishment is constitutional.  I wrote another blog about debtor’s prisons here: http://bit.ly/JmsMFt .

I am a bankruptcy lawyer practicing bankruptcy law in San Diego California.   For more information related to debt, bankruptcy, or debtor’s prison please visit my websites at www.farquharlaw.com and www.freshstartsandiego.com.  Or call me directly 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.

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.

Did you receive a notice of garnishment of your wages? Bankruptcy can stop it and get some of your money back that has already been taken!

Many of my clients come to me with wage garnishments already in place or they have received notice that one is about to begin.  A wage garnishment is when a creditor can reach out to your employer and seize part of your paycheck for some debt you owe.  These creditors are limited to taking no more than 25% of your take-home pay.  This amount can be large though and can make the difference in whether you can afford to pay your bills or not.

Before creditors can get this garnishment in California they must go to court and get a judgment and then file for the wage garnishment with your employer.  Once they get it the garnishment will continue until the debt is paid in full which can be some time if the debt is large.

Some of my clients have a $20,000 or $30,000 credit card debt or vehicle deficiency debt that is being garnished from their wages.  Most of these people can’t afford to pay their ongoing bills with their current income and a 20% pay cut makes their situation impossible.

It is best to catch this before the garnishment hits your paycheck but the good news is that bankruptcy can stop this immediately from happening.  If we catch the garnishment before it starts that is best.  But if we do not we can still stop it and wipe out the underlying debt.  We can even get back some or all of your money garnished if we file within 90 days of the garnishment beginning.  We will send a request to the creditor that they return the money and most will return it if a bankruptcy case has been filed.

So don’t despair if you receive a garnishment notice.  It is not the end of the world.  A wage garnishment can be stopped and the money can usually be returned.  You just need to call a bankruptcy attorney, let the attorney analyze your case, and file the bankruptcy.  And don’t worry about whether you owe the money or not and don’t worry about not paying it back.  It’s your federal right to file for bankruptcy and get a fresh start with your debts discharged so contact an attorney today and begin the process to return your income to you.

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

If you are considering bankruptcy and want to receive the Free e-book; “13 Things You Should Do To Prepare For Filing Bankruptcy” then please e-mail me at: farquharesq@yahoo.com.