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.

 

In defence of lawyers- maybe they should not go to the bottom of the ocean just yet.

LawyerI am getting regular comments on my blogs attacking me and attacking lawyers in general so I thought I would write a blog that defends lawyers.  I have been a lawyer for over 12 years now.  I Lincoln-lawyershave done many things before the law so it is not the only profession I know.  I am now doing bankruptcy law but I have practiced in the areas of Immigration and Landlord/Tenant also.

It is well-known that many people do not like lawyers.  They are considered dishonest, greedy, self-serving “blood suckers” by many.  In fact one of my kids favorite movies is Jurassic Park where the lawyer is openly called a “blood sucker” to his face and he is the first to be eaten by the T-Rex as he hides on the toilet.

Shakespeare has a line in a play about them all being killed and lawyers are the butt of many jokes like one that puts them at the bottom of the ocean (like drowned rats) as a good start.  On talk radio they are skewered often and many talk show hosts seem to consider them the root of all evil.  They seem to be blamed for many evils in society.

For those of you that have been around long enough it reminds me of what police were thought of in the 1960s.  Many hippies and radicals wrongly thought of the police as the cause of all ills in society at that time.  The implication then was that if we just got rid of them then society and everyone would be better off.

But I remember what I read in a “Mad” magazine once when I was a youngster in the 1960s.  A hippy was protesting the cops and holding up signs calling them “pigs” in full view of the police officers.  Then a mugger came along and robbed the hippy of his wallet.  He immediately called out “help, help police” and the cops did not help him and responded with “no one here but us pigs”.

And the same is true of lawyers.  The same people who say they hate lawyers will call one very quickly if they are sued, or served a divorce, set upon by the IRS, or especially if they are arrested.  The lawyers will dutifully come to their aid and help them.  What if they didn’t?

And you may say” but lawyers are paid so well for their work”.  Not always.  Many in private practice are losing money because running a law office is expensive and clients are hard to come by and they often don’t pay their lawyers.  You would be surprised at how often and how much lawyers talk among themselves about their struggles in getting paid by clients and their resulting financial difficulties.

Also it is true as you may have suspected that there are too many lawyers out there for the available clients.   And remember that things are far worse and lawyers are getting even fewer clients now with the recession.

Lawyers are well aware of their reputation.  I work in a building with a hundred lawyers and we talk about this stuff.  We know we are hated and under-appreciated.  I once got a quote from a lawyer that was very interesting:  “Your lawyer in practice spends a considerable part of his life in doing distasteful things for disagreeable people who must be satisfied against an impossible time limit in which are hourly interruptions from other disagreeable people who want to derail the train; and for his blood, sweat, and tears, he receives in the end a few unkind words to the effect that it might have been done better, and a protest at the size of the fee.”

This partially reflects the lawyers perspective.  He or she is doing these difficult tasks for difficult people under pressure and they are rarely happy with it.  And this is he can even get a client in this recessionary environment.  It is no wonder that lawyers suffer from problems with drugs, alcohol, depression, and suicide.   Very often lawyers become disillusioned with law and leave it altogether because doing it everyday is not what you might think.

Most lawyers I know now in private practice are certainly hurting now.  Business is down, clients are scarce and money is tight.  Clients just don’t have money to spend.  These lawyers are not getting rich or blood sucking but just trying to survive like everyone else.  They have kids in school and house bills to pay too.

And remember that many are providing a valuable service.  They provide this service to many people and get very little in return.  They are often doing things like helping people in very bad marriages break up peacefully, or getting people out of deep debt, or keeping people out of jail, or fighting off a lawsuit that could potentially ruin them.  In addition they are defending those against the government which has unlimited resources to come after anyone of us.  And who is going to defend you when that happens?  Only a lawyer can.

So don’t put lawyers at the bottom of the ocean yet.  In Shakespeare’s Henry VI play the character who says “kill all the lawyers” is trying to stage a revolution, take over the country, and establish himself as king.  He knows who will stop him.  Those that know the law, the Constitution, and how to get things done in court and throughout the legal system.  The lawyers would stop him from taking over so character asking to kill the lawyers is the villain in the story and the lawyers are the heroes.  This quote is usually used in the opposite way in which Shakespeare intended it.

So the next time you are being “mugged” (i.e. sued) in court by a private party or by the government remember who is going to help you.  The lawyers and only the lawyers will and only the lawyers can.  They are the heroes of our story here.  When you call out for a lawyer to defend you be nice to them.  You don’t want the lawyers to respond with “nobody here but us drowned rats”.

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.

Lawyer clipart courtesy of OCAL.  Lincoln quote courtesy of mrsdkrebs.

1 Trillion dollar problem. Student loan debt increases 275% over the last decade! When will they be bankruptable?

It’s true!  According to an article posted online by CNN Money student loan debt has tripled in the last 10 years.  The total amount of student loan debt in the U.S. is $904 billion in the first quarter of 2012 and that is up from $241 billion in 2003.  It is now the second highest form of debt behind mortgages which means that credit cards have less charged on them than these student loans.

As if this is not bad enough the debt keeps growing.  In fact it is the only type of debt that has substantially increased since 2008 according to a senior economist at the NY Fed.

And the delinquency rates on these student loans are also rising.  They are up to 8.69% from just 6.13% a decade ago.  Does this mean that over 90% of people are not delinquent?  No!   Almost 50% of these loans are currently in deferment or grace periods according to another Fed. economist.  That means that 60% of these loans are basically not being paid because the borrowers who are still in school or unemployed don’t have to pay anything yet.

So you have a whole class of debts that has reached astronomical heights and almost two-thirds of that debt is not being serviced.  It sounds like a potential disaster to me.  The median amount borrowed is $12,800 but 25% of borrowers owe more than $28,000, and 10% owe more than $54,000, and 3% owe over $100,000.  90% of the lending comes from the federal government and borrowing is way up apparently because of the economic downturn.  Students are apparently rushing to take out new debt for this coming year.  Most likely debt which they cannot pay.

My experience with these student loans is that they don’t care if you get a job in your field or if you cannot pay your rent.  They want their money when you get out and get a job and they will wait forever to get you to pay.  They tacked on over $7000 to a student loan which a client of mine took out years ago after he did not make payments on the loan.  We attempted to settle with borrowed money but they would have none of it.

They wanted their whole amount plus their interest and fees and they were not interested in any settlement.  My client made $10,000 a year on menial labor with a pregnant wife and two children and the student loan collectors did not care even that he would probably never be able to pay the debts.  Nor did they care that he never got a job in the field which he studied for.  The lady on the phone told me that “lots of people are having hard times”.

Yes, and let them eat cake!  How long can this country tolerate this intolerable student loan problem?  It’s over A trillion dollars and growing and 60% of these loans are not being paid on.  Collectors don’t care whether you can pay or not and just want the money and the economy is down so people are lining up to get more loans which they will never be able to pay.

The whole problem could be solved by making these debts dischargeable in a bankruptcy.  It is ridiculous that these loans cannot be included in bankruptcy when car loans, credit card loans, personal loans and mortgage loans can all be taken care of through a bankruptcy.  How can it be that someone who tries to improve themself by getting an education must be stuck with that debt for life when others can get rid of their debts in bankruptcy when they reach the level which they cannot pay for them?

And it is not just a problem for government backed loans.  Private student loans are also not dischargeable in bankruptcy since 2005.  This has led to an explosion in private student loan debt too that leaves many with worthless degrees and debts they cannot pay for.  I also wrote a blog about private student loan debt.

I also argued in another blog that student loans should be dischargeable in bankruptcy.   If they made all student loans dischargeable in bankruptcy then the problem would go away for these students.  That is what bankruptcy is for.   It serves to help people get rid of debts which they have no hope of paying and then move on in life with a fresh start.  The whole bankruptcy process is looked over by a series of trustees and a bankruptcy judge.  They make sure that income and assets are insufficient to pay the debts and to make sure there is no fraud.  It is the perfect system to handle these debts.

How long can we kick the can down the road?  These students cannot pay these debts.  Like many of my clients they are barely surviving and they can only pay rent and food if they are lucky enough to get a job.  How can we pretend that they can pay 10s of thousands of dollars in student loan debt?  Are we to hound them to the grave?  The only solution that makes sense is to make these dischargeable in bankruptcy.  Take it from one who sees this situation every single day.

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 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.

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.

Are people leaving the labor force? Is unemployment really rising? The labor force participation rate says yes!

There have been many articles and warnings lately that people are leaving the labor force.  These articles claim there are fewer people working or looking for work each year and that the labor force of employed or employable individuals is shrinking.  This is occurring while the population is still rising.  There is therefore apparently not a lessening of the population but a lessening of people in it that are eager to work.

That begs the question of why this is happening.  Is the population just aging?  Are people retiring earlier or are kids staying at home longer?  Or is it that more and more people just giving up and forgetting about working or looking for work?

And if these people are just leaving the workforce out of disillusionment with the current state of the economy then how are they surviving?  Is government (you and me) paying for them?  Are they living off friends and relatives?  Are they living off the land?  What are these people doing and why and will it continue?

According to a recent online article posted on ZeroHedge the labor force has declined in the month of April by 522,000 people.  That means that there are currently 88,419,000 people who are not in the labor force but who are of an age where you would expect that they would be (over the age of 16).  This represents a new low.

I found a definition of the “labor force participation rate” in the Winston-Salem Journal.  It is a term used by the Department of Labor and it simply means the number of people over the age of 16 working or actively looking for work.  According to this article the labor force participation rate for April 2012 is 70% for men which is the lowest since the government started keeping statistics on this in 1948.  For all Americans it has reached the lowest level since 1981.

Some say that high paid jobs are being replaced by low wage manufacturing and construction jobs.  This could account for the lowest level ever of men working.  Many of my clients have looked for higher wage jobs for years and can’t find anything.  Many of these people have given up trying to find a job out of disillusionment.  They simply won’t take a very low paid job at their age and skill level.

As far as 16 year olds are concerned most don’t currently work even if many of us adults think they should.  Indeed the current “failure to launch syndrome” tells us that 70% of children under the age of 30 still live with their parents.  Women make up more than 60% of college grads and they are entering the workforce in numbers which may contribute to lack of job availability for men.  The overall labor force participation rate peaked in 2000 when women really began “flooding” the workforce according to this article.

But still  it seems in general that more people are continuing to leave the workforce.  Some groups have a higher rate but every group seems to have fewer people working as the numbers for the whole labor force participation is at its lowest rate since 1981.

The problem is that the government only counts unemployed people if they are in the labor force. If they have exited for any reason then they are not counted.  So when you are told that the unemployment rate is declining then remember these figures.  Ask yourself if unemployment really is declining because it seems to me that it is still rising.  It also seems like there is an ongoing mass exodus currently from the labor force.  A mass exodus that is not showing up in unemployment statistics.

You might come to the same conclusion that we are being lied to.  That unemployment is rising, more people are out of work and these people appear to be so disillusioned that they have given up on work altogether.  All the while we are being told that the economy is improving and unemployment is falling.  I say don’t believe it.

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 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.

“Occupy Chicago” wants to forgive student loans. Your student loan bailout should be through bankruptcy!

The “Occupy Wall Street” movement has created many spinoff movements all over the country like the one here in San Diego.  After hearing criticism for their lack of coherent demands, the “Occupy Chicago” chapter came out with a list of demands on Monday.  Among other things, like taxing the wealthy and attacking Wall Street, they want student loans forgiven.  I argued in a blog that I posted Sunday on the Occupy San Diego movement that student loans should be dischargeable in bankruptcy.

In the face of the bailouts that Wall Street firms and banks received more and more people are asking “where is our bailout”?  Regular people have a tremendous amount of debt which they cannot afford and they believe that justice demands that they need some consideration from government.  It is true that almost 50% of people pay no income taxes but should we bailout the 99% with massive wealth transfers?

I say no.   Most people in this country will not go for that.  I have argued for years on my blog that a bailout plan already exists for the 99% of us that are neither rich nor giant corporations.  It’s called bankruptcy and bankruptcy allows you to legally walk away from your debts and have them discharged so you no longer owe them.  You can then get a fresh start debt free and keep what money you earn from employment.  Everyone can avail themselves of bankruptcy.  You don’t have to be a privileged person or corporation to get it.  In fact if you make too much money you will be means tested out of a chapter 7.

So bankruptcy is available for regular people but there is a problem.  Student loans cannot be included in bankruptcy.  Student loans currently are not dischargeable in bankruptcy.   They do therefore indeed last forever or until you allege “undue hardship” which is very hard to prove.  If these student loans were to be included in the lists of debts that people could discharge in bankruptcy then regular people would not be saddled with them forever.  They could escape them and move on in life with their student loans forgiven.

This could be done so much more easily and fairly in the context of bankruptcy than through some government blanket forgiveness.  Bankruptcy has been around for hundreds of years and the systems are in place to handle forgiveness of debt through the filing of bankruptcy.  There are trustees and judges to oversee each individual to make sure that the people asking for forgiveness really can’t afford to pay these debts back because the have neither the income or assets to do so.

In bankruptcy there are even proscribed exemptions that allow each person to keep a certain amount of property.  For most of the 99% this would amount to people keeping all of their property because most people don’t have more than these allowed exemption amounts.

This solution will also be so much more palatable to the American public.  It allows the forgiveness of the student loan debt but within the confines of the bankruptcy system.  Each individual would have to file for bankruptcy to get his student loan debt forgiveness.  He would then be examined by a Trustee and he would face a judge if fraud or other problems came up.   His income and expenses would be looked at to determine that he could not pay his debts with his current income and thus he is formally bankrupt. Those who could afford to pay the loans would then have to do so in some form but many many student loan debtors would be able to escape these loans if they were dischargeable in bankruptcy.  Bankruptcy is no blanket gift.

And it would be fair.  Many people with student loans cannot afford to pay these loans and they have very little hope of paying them back.  They are under employed or more likely unemployed and they cannot afford their living expenses let alone these student loans that have not even landed them a job.  It is simply not fair that a person who used their credit cards to excess can discharge those debts but the person trying to get an education and a job can never escape them even if they have no money and no job.

But many people will say that if we make student loans dischargeable in bankruptcy then student loans will be harder to get.   Maybe that is a good thing and people won’t borrow money for degrees that won’t lead to a job.  But I also believe that as credit cards are still obtainable by most people today and they are dischargeable in bankruptcy.  Bankruptcy has not stopped that industry and dischargeable student loans will not stop lenders from lending money for these loans either.

It also should not matter whether the loans are government or private.  If  they are private then the loans should be treated like credit cards and if government loans are owed then forgiveness of these loans is only fair in light of the bailouts given by the government to the financial industry.  Whether government or private though the effect is the same on people.  They can’t afford to pay them back in many cases.  (Remember also that IRS tax debt is dischargeable after only 3 years and the IRS still continues to operate).

And for further fairness you could make student loans dischargeable after a period of time say 10 or even 20 years.  If the student has not paid them back by that time then they are certainly having a problem and they probably can’t pay them back.  It is only fair to allow people to escape them in time.

I am a bankruptcy attorney practicing bankruptcy law in San Diego, CA.   For further information please visit my website at www.farquharlaw.com or www.freshsatartsandiego.com.   Or call my office for a free consultation at (619) 702-5015.  If you or someone you know are considering bankruptcy then get my Free e-book “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPCTY FILING” by e-mailing me at farquharesq@yahoo.com.

Short Sale and foreclosure- watch out for the small lenders! Can bankruptcy help?

I believe that short sales are preferrable to foreclosures because of the credit score hit that you take in a foreclosure.  Most large banks should readily do a short sale for you but watch out for small lenders who may lure you in with the promise of a short sale only to cancel the short sale at the last-minute and sell the house at auction.  Watch out for the game they play where they lure you in thinking you have a short sale approved only to find out that you don’t and the house is sold at auction to a third-party buyer.

Don’t worry the big banks are involved in 95% of loans these days so chances are you don’t have a small lender at all.  The big banks like Chase, Wells Fargo, and B of A are usually all very amenable to short sales.  They have too much foreclosed housing inventory currently and they prefer to execute short sales of homes whenever possible.  My realtor told me of a case where they told the owner to go get a realtor and do a short sale.  They apparently had no interest in a foreclosure if it could be avoided with a short sale.

This is good for you because short sales are better for your credit score.  A foreclosure can last longer on you credit report than even a bankruptcy which prevents you from getting a FHA loan for 2 years.  A foreclosure prevents FHA loans for 3 years traditionally and there are stories of them precluding FHA loans for 5 years.  A short sale appears on your credit report as a “settled” debt which is also two years so even with a bankruptcy you would only have to wait two years for a loan.

The problem I just faced in a case was with a small bank that falls in the 5% of loans category.  My client had his loan sold from a big bank to one of these small ones years ago.  We attempted to do a short sale on the property but the bank stalled our efforts from the beginning.  In the end we had a great buyer and all the docs in and the bank came up with an excuse at the last-minute and went ahead with the sale on the courthouse steps.  It was clear after that they never really wanted a short sale at all and that they were determined to do a foreclosure from the beginning.  I just wish they told us that before we jumped through all the hoops and wasted everyone’s time.

We looked up this company and discovered that they approve less than 10% of short sales brought to them.  We speculated that they are getting some government bonus for the foreclosure because the government appears to want to see more foreclosures.  It seems silly as this is hurting people’s credit but the government disincentive programs are often hurtful and wrong.

A chapter 7 bankruptcy would have stalled the foreclosure sale it is true (This client had insufficient income to fund a chapter 13).  But then the bank could have filed an immediate motion for relief from stay and it would have been granted by the bankruptcy court quickly.  Once the relief was granted, the stay lifts and the bank can proceed with the sale.  So a bankruptcy filing can only stall a foreclosure and it will not force a determined bank t accept a short sale.

I just looked up a case for a client who had a stay lifted in 3 weeks and a new sale date scheduled three days after that.  So it’s possible that a chapter 7 bankruptcy will only stall a foreclosure sale for 20 to 30 days.  But it is all dependent on how quickly they file the motion.  I have seen them take 6 weeks to file but two weeks is more common and they could file the motion for relief within just days of the bankruptcy filing.

If you have one of these small banks then the most you can do is stall them with a chapter 7 bankruptcy unless you can afford to fund a chapter 13 for years to come.  Most people cannot afford this so they opt to do a chapter seven or hope that they can get a sale through as we did.  But then you run the risk of the bank pretending to want a short sale and then cancelling it at the last moment when it is too late to file a bankruptcy.

A bankruptcy can still get rid of most of your other debts though if you have them so don’t be afraid to use bankruptcy where necessary.  A chapter 7 can’t stop a foreclosure sale but only delay it though and it can’t get your house back once it’s sold to a third-party buyer.

Beware of the tricks these small banks play on you!

I am a San Diego bankruptcy attorney.  For more information please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call for a free consulation on any debt or bankruptcy matter at (619) 702-5015.  Call now for a free credit report and analysis!

If you or someone you know needs to file a bankruptcy then get my FREE E-BOOK “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” by emailing me at 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.