“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.

“Occupy San Diego” has begun! But if you want a bailout like the banks then try bankruptcy. (But let’s add student loans to the list of dischargeable debts)

The “Occupy San Diego” movement is currently in full swing in our city.  Protestors have marched through San Diego and occupied a park in downtown.  It remains unclear just what they are protesting though.  Some in the movement say it’s “corporate greed”.  According to an article in Sign on San Diego the protestors are not just angry about corporate greed but they also object to the money flowing into the political system from the financial industry and the banks.  According to the “Occupy San Diego” website those in the movement say they are for “social and economic justice” and they are protesting “global financial corruption” and the financial influence that has infiltrated everything and led to the current economic crisis.

On the “Occupy San Diego” website they also have a list of items they recommend people bring to the protest, along with their tents, much like the lists for camping trips.  They tell you where the bathrooms are and whether the are 24 hour or not.  They talk about first aid, entertainment, as well as security.  Mostly they seem to be ready to stay and occupy these parks in San Diego for a long time as they prepare their list of demands.

Apparently the movement is being advertised and spread rapidly by social media and it is gaining steam.  Where it goes and when it ends is anyone’s guess.  I must admit that this thing is somewhat fascinating as I can’t remember another movement like this even though I don’t necessarily agree with some of the premises like the anti-capitalist, pro-government emphasis.  I personally prefer small government libertarian ideas that emphasize personal freedom.  But the movement is certainly interesting and I intend to drive by and maybe mingle as I work downtown.

We who practice bankruptcy law though do believe in our cause too.  We believe that we bring freedom from the terrible burdens of debt to average people who are 99%ers.  We regulary help free people from this debt but we also bring equality too.  We bankruptcy attorneys can take you down the same road as one of these corporations that regularly file for bankruptcy and shed their debt.  Any one individual person (or couple) can file and be just like a corporation.

We in bankruptcy believe he average person’s bailout is a bankruptcy.  What is a bailout after all except a forgiveness of your debt?  You don’t have to wait for the government to give you something that only big financial institutions have.  The 99% already have the power to get their debts forgiven.  You can get your debts forgiven tomorrow.  The legal framework already has been in place for hundreds of years. Average people just have to avail themselves of the bankruptcy process.

And if you are unemployed and have no income to pay those debts then bankruptcy makes even more sense.  Imagine waking up tomorrow debt free.  How would that feel?  You could get your bailout just like big financial corporations did if you file for bankruptcy.  It’s a wonderful thing for sure.

It is also true that many people around the country have massive student loans left over from their education. Many people had to borrow heavily to originally fund their education so they could get a job.  Many of those people cannot get a job now in this economy and they have no money to pay those loans back.

It is also true that these debts are not currently dischargeable in bankruptcy.  In fact Obama’s latest spending bill would allow private collectors for these loans robocall your cell phone to harass you into paying these loans.  He is making the situation therefore worse by allowing these companies to go after you for debts which you probably cannot pay.

If this movement wants to put in a demand that these debts should be dischargeable in bankruptcy then the movement would gain the support of mostly all those who work in bankruptcy because we believe that these debts should be dischargeable.  There is no reason why students should be saddled with these debts forever but someone who over-used their credit cards can get rid of those debts.

A stipulation could be put in the new law that the student loan debt would not be dischargeable until they are 10 or even 20 years old.  This would give collectors time to collect these debts and if they can’t collect in this time then they would have to forgo collection if the person filed bankruptcy.  I believe that it’s fair to say that f the collectors can’t collect within 10 or 20 years then the debtor probably will not ever be able to pay.  Those debts are probably uncollectable and debtors should be freed from having to pay them the way financial institutions have been given infusions of cash so they can continue to operate their businesses.

How about including that demand that in this protest?  If this happens then more people will obtain financial freedom and greater parity with corporations.  Student loans can be onerous for people who have no way to pay them in this economy.  How about a student loan bailout?  Make these loans dischargeable in bankruptcy and that is all you would have to do.

As for the protest I will continue to watch with great interest as I want to see where it goes and how it ends up.  Will these people ever go home?  Will hey set up tent cities?  Will violence occur or will they be peaceful?  Will police make arrests?  How many will join those already there?  Then where will they all go?  Will they shut down operations in this city?  What will happen nationwide?

I will continue to follow and blog about this movement.

I am a bankruptcy attorney 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 free credit report and analysis! 

If you or someone you know is considering bankruptcy then get my FREE E-BOOK; “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY 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.

Shadow market tsunami!- It will take 4 years to sell all of these foreclosed homes! Good time to file bankruptcy.

(For an update on the curent state of foreclosures see this blog:  http://bit.ly/JGU1dZ ).

According to an article in the Daily Real Estate News it will take 4 years to clear the backlog of real estate “shadow inventory”.  The banks don’t admit that they have this inventory but they do.  Now we find out that there is indeed a four-year supply of these homes and the supply appears to be growing.

This is why home prices should remain depressed for some time.  Even if the overall economy turns around the housing market still operates on a supply and demand basis.  If there is this huge inventory of foreclosed homes that the banks are holding off the market then it will take some time before it is moved through the system.  We now get the word that there is this four-year supply of these shadow homes out there waiting to be sold.  I look for housing prices to be depressed for at least that long.

Scarier still is the statistic that this shadow market is up 11% in the fourth quarter of 2010 and up 40% from a year ago and the number of homes that are actually part of this shadow inventory appear to be growing.  According to the article Standard & Poors defines shadow inventory as properties with borrowers who are 90 days or more delinquent on their mortgage payments, properties currently or recently in foreclosure, or properties that are real estate owned (REOs). 

They point out that shadow inventory peaked in 2008 but that is probably because banks are currently waiting longer to foreclose on properties.  I have clients who have homes that they have stopped paying for and that they have moved out of a year or two ago and no foreclosure has been started.  It seems that banks are slowing down their rate of foreclosure processing.  This inaction creates more shadow inventory because there are now more homes that don’t show up on anyone’s radar.  These homes that don’t get moved through the system are in limbo and whether occupied or unoccupied realtors cannot list them for sale.   The number of homes like this are growing.

The article prints a chart where they show the number of months that it will take to clear these shadow homes.  It ranges from a high of 130 months in New York to a low of 25 months in Phoenix.  The other cities are Atlanta 49, Boston 71, Charlotte 65, Chicago 59, Cleveland 57, Dallas 56, Denver 38, Detroit 31, Las Vegas 33, Los Angeles 50, Miami 60, Minneapolis, 38, Portland 51, San Diego 39, San Francisco 42, Seattle 59 Tampa 57, Wash. D.C. 50.  It is clear from this chart that this is a nationwide problem of a shadow inventory of unsold and unlisted homes.

New York alone has $116.7 billion in shadow inventory according to Standard & Poors and because of the slower liquidation rate there New York will take 2.7 times longer to clear this inventory.  Los Angeles has a larger volume of shadow mortgages, $173.1 billion, which amounts to 31.5% of all outstanding mortgages.  L.A. has a faster rate of liquidating distressed properties.  My own city of San Diego has a 39 month backlog of shadow homes.

Default of home mortgage modifications remains high also.  80% of people have defaulted on their modified loans in the past and though the default rate is declining they say it still remains high.  My clients report extreme difficulty in getting their banks to agree to modifications of their mortgages.  It’s discouraging that such a high percentage of modifications go into default if people do in fact manage to get through the very difficult modification process.

The funny part is that the banks repeatedly deny that there is a shadow market or shadow inventory of unsold homes.  Realtors know that there is such a market as they can’t get listings for many of these homes that banks are holding off the market.  If banks now slow down or stall the foreclosure process then it will only increase this shadow inventory and increase the amount of time necessary to clear it before housing prices can rebound.

Don’t be surprised if the real estate market lags well behind any other economic recovery that happens in the country.  It is also possible that this huge inventory will act as a drag on the overall economy and prevent a recovery.  It could become what some have labeled as a “shadow tsunami”.

It is obviously a good time to buy a house though if you are going to keep the home for a while and its a good time to stay in your home longer if you are currently in a foreclosure.  It is also a good time to file for bankruptcy as prices will still be low in two years.  It takes two years to elapse after a bankruptcy before you can get a FHA loan approved.  Don’t allow your home to be sold at a foreclosure sale though as then you will have to wait five to seven years to buy a home.  Better to do a short sale and save your credit.

I am a bankruptcy attorney practicing in San Diego.  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 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.