If you owe debt to creditors, they may be harassing you over the phone or through mail. An automatic stay would alleviate this cause of stress. The automatic stay is a federal court order that stops all collection proceedings against you. On the day that you file for bankruptcy, creditors have to stop their foreclosure proceedings. Creditors also must stop any pending lawsuits against you and stop garnishing your wages.
However, the new bankruptcy law places new limits to the level of protection the automatic stay provides in certain situations. The following is a list of circumstances that will lead a court to limit or cancel your automatic stay.
Second Time Filing for a Chapter 7 or Chapter 13 BankruptcyIf you unsuccessfully filed for either a Chapter 7 or Chapter 13 bankruptcy within the past year, the courts automatically assume that your second bankruptcy is in bad faith. The courts will then limit the application of the automatic stay to 30 days when you file for bankruptcy again. You can try to extend the automatic stay by proving to the court that you have filed in "good faith."
If your previous bankruptcy was dismissed for failure to provide required documents without an excuse, the courts could say that your new bankruptcy is in bad faith. This is also true if your financial situation has not changed enough to allow a financial discharge or completion of a bankruptcy plan.
Note that the courts will not limit your automatic stay to 30 days if you were forced into filing a Chapter 13 bankruptcy after failing the Chapter 7 means test.
Third or Fourth Time Filing for a Chapter 7 or Chapter 13 Bankruptcy
If you have had two or more bankruptcy cases within the last one year and you file for bankruptcy again, the courts will not grant you an automatic stay at all. In order for you to benefit from an automatic stay, you will have to prove to the courts that your new bankruptcy is in good faith and must make an application with the court to impose the stay on your creditors. Thus, if you wait until the eve of a foreclosure sale, it could be too late.
Failure to Provide a Statement of Intent within 30 Days
If you owe debt on a secured property, such as a car or home, you will have to state what you plan to do with the debt. This is called a statement of intent. If you do not file a statement of intent within 30 days, the courts will take away your automatic stay with regard to the secured creditors. However, the trustee could ask the courts to extend your automatic stay if your secured property is valuable to your estate and your creditor would be adequately protected.
One advantage to filing for bankruptcy is the automatic stay. It will stop your creditors from punishing you for not paying your debts.
If you decide to file for bankruptcy, it is likely that you will want to keep your home. Each state provides that debtors in the state are entitled to a "homestead exemption." A homestead exemption allows a debtor to protect equity in a homestead up to certain limits. Thus, if the equity in your homestead property is less than the exemption provided under state law, your house can be protected from creditors and you can file for Chapter 7 bankruptcy without having to sell your house to pay creditors.
There are a few things you should know about homestead exemptions. First, homestead exemptions differ from state to state. Second, the new bankruptcy law will place limits on how much equity you can protect, even if you are in a state that provides a generous homestead exemption.
The state you live in will determine the amount of your homestead exemption. Your homestead exemption will be based on the laws of the state that you have lived in for the past two years before filing for bankruptcy. However, if you have recently moved, your home state will be considered the state you have lived in for the majority of the prior 180 days preceding the two years.
Limitations Under the New Law
Under the new bankruptcy legislation, you will not be able to exempt more than $125,000 on equity in a residence purchased within 1,215 days (or three years and four months) before filing for bankruptcy. This calculation does not include the equity of another home you may have bought previously in this 1,215-day period.
Additionally, if you are guilty of securities fraud or certain criminal conduct, your exemption will cap at $125,000. If the court finds you guilty of fraud, this could also hinder the amount of your homestead exemption. Fraud may include disposing of property in order to defraud a creditor or fraudulently converting nonexempt assets ten years before filing for bankruptcy.
Your home is likely an important asset to you.
Changes to the Scope of Chapter 13 Discharge
The new bankruptcy laws narrow the scope, or range, of debt you can discharge with a Chapter 13 bankruptcy. The following is a list of these restrictions.
A cash advance is an amount of money that is paid before it is earned. An example of a cash advance would be money that a check casher lends you before you receive your next pay check. The check casher would then expect you to pay back the loan, including the loan's interest. With the new law in effect, you can't discharge a cash advance that is more than $750 and made within 90 days of filing for your Chapter 13 bankruptcy.
The new law will include student loans from for-profit institutions as non-dischargeable. Examples of for-profit educational institutions include beauty schools and truck driving schools.
You will not be able to discharge any purchases made within 90 days of filing that are worth $500 or more. Under the old bankruptcy laws the limit to dischargeable purchases was $1,500.
Credit Card Purchases and Fraud
Credit card fraud includes lying about income on a credit card application in order to get a higher balance on your credit card. It is also fraud to wrack up high credit card debts immediately before filing for bankruptcy. Under the new law, creditors will be able to prosecute these forms of fraud with an adversary proceeding in Chapter 13. An adversary hearing is a separate trial within a bankruptcy case. Your attorney will then have to prove your credit card debt is not fraud. These new, additional procedures could make your bankruptcy proceedings more costly and could result in discharging less debts under Chapter 13 than in the past.
The new law will narrow the scope of your dischargeable debts. It will restrict your options while going through the bankruptcy process. In the case of adversary hearings, the new law will make filing for a Chapter 13 bankruptcy more expensive.
Auto Lien Stripping Under the New Bankruptcy Act
If you filed for Chapter 13 bankruptcy under the old law, you could have chosen to "strip down" the auto lien on your vehicle. Stripping down an auto lien means reducing the debt you owe on your vehicle. In other words, you would reduce your car payment to the value of the car only and you get to pay a lower interest rate.
For example, you may owe $10,000 plus interest on a car that is worth only $5,000. If you stripped down your auto lien under a Chapter 13 bankruptcy, you would only have to pay the $5,000 plus a lower interest rate.
Note that your car is considered a secured debt under Chapter 13. A secured debt is a debt where the creditor takes your property as collateral. Homes and vehicles are examples of secured debts. If you do not pay your secured debt, your creditor has the right to take your vehicle or home.
New Bankruptcy Law Changes
With the new bankruptcy law in effect, auto lien stripping has been restricted. Now you can only reduce the principal owed and the interest rate on your vehicle if you bought your car more than two and a half years (910 days to be exact) prior to your bankruptcy filing.
Depending on your circumstances, the inability to "strip" the lien on your car could mean you can not afford a Chapter 13 plan. If you can not afford a Chapter 13 plan, you may not be able to prevent the repossession on your car. This could be disastrous. You would lose mobility. It could be difficult to travel to your place of employment. Since you must go to work to pay your living expenses, this obviously creates a hardship. If you are in serious financial trouble, you should NOT WAIT to file for bankruptcy immediately.
Credit Counseling and Debtor Education Courses - Bankruptcy Reform Act
Under the old bankruptcy law, you could file for bankruptcy at any time. Now, before you will be able to file for either Chapter 7 or Chapter 13 bankruptcy, you will have to participate in a credit counseling session within 6 months of the filing. After successfully filing for bankruptcy, you will also have to pay for and attend a debtor education class in order to relieve your debts.
Pre-Bankruptcy Credit Counseling
During your credit counseling session, a certified credit counselor will help you explore your options. Your credit counselor will be a qualified financial advisor who will help you decide if bankruptcy is the right choice for you. In addition, he or she is required by law to offer you impartial advice. This means that he or she cannot lead you to make a specific financial decision.
Your session may be in the form of a simple phone call to a credit counseling agency. You may even be able to send a credit counseling agency your information through the internet. You will probably spend about one hour discussing your situation with the credit counselor. When you have completed your pre-bankruptcy credit counseling, you will receive a certificate. You will then be eligible to file a Chapter 7 or Chapter 13 bankruptcy.
Post-Bankruptcy Debtor Education Course
In order to relieve your debts, you will be required to attend a debtor education course. The purpose of this course is to teach you how to better manage your finances after your bankruptcy. It will take more time to complete than your credit counseling session and may last from 1 to 3 hours.
You will probably be required to pay for your debtor education course. This means that filing for bankruptcy will cost you more money. However, some US Trustees may offer debtor education courses at their own offices. This will make attending the class cheaper and more convenient for you.
The required credit counseling session and debtor education courses make filing for bankruptcy more time consuming. The debtor education course also makes filing for bankruptcy more expensive. If you are thinking about filing bankruptcy, you should do so now.
Changes to Chapter 7 and Chapter 13 Bankruptcy: Overview
Every aspect of bankruptcy, including the filing process, debt repayment, and re-filing for bankruptcy has changed dramatically. Here is a brief summary of how the changes apply to Chapter 7 and Chapter 13 bankruptcy proceedings.
Changes to both Chapter 7 and Chapter 13 Proceedings:
|Before the New Law||After the New Law|
|You can file for bankruptcy at any time.||Before you can file for either Chapter 7 or Chapter 13 bankruptcy, you will have to attend a credit counseling session within six months of filing.|
|Honoring your bankruptcy arrangements will relieve your debts.||You will have to pay for and attend a debtor education class in order to relieve any of your debts.|
Changes to Chapter 7 Proceedings:
|Before the New Law||After the New Law|
|The courts decide whether you qualify for a Chapter 7 bankruptcy.||
A new two-part Means Test decides whether you qualify for a Chapter 7 bankruptcy.
If you fail the Means Test, you may have no choice but to file for Chapter 13 and repay your debts.
|You can file another Chapter 7 bankruptcy in 6 years.||The new bankruptcy law will extend the waiting period between Chapter 7's from 6 to 8 years.|
Changes to Chapter 13 Proceedings:
|Before the New Law||After the New Law|
|The court decides what debts you are able to pay. The court also helps you decide how much money you will reasonably need for your expenses.||The court will use guidelines set by the IRS to decide for you how much money you will reasonably need for your expenses. These IRS guidelines are stricter. If you do not agree with the court's decision, you will have to argue the decision in court.|
|You decide how long you have to stay in your payment plan, usually from 3-5 years.||If your income is above your state's median income, you must pay your debts in a five-year plan.|
|You can relieve most of your debts by filing a Chapter 13 bankruptcy.||The new law reduces the types of debts you can discharge. Debts like those incurred for breach of fiduciary duty, or recent credit card usage can no longer be discharged in Chapter 13.|
Means Test - New Bankruptcy Reform Act
With the new bankruptcy laws in effect, debtors will have to first pass a two-part means test before filing for Chapter 7 bankruptcy.
First, a quick definition of Means Test:
Means = Money, property, or other wealth (source: Dictionary.com)
Your Income Vs. Your State's Median Income
In the first part of the means test, your monthly income multiplied by 12 is compared to your state's median annual income. Your state's median income would be below your state's highest incomes and above your state's lowest incomes.
If your income falls at or below your state's monthly median income, then your Chapter 7 bankruptcy filing will likely be successful.
On the other hand, if your monthly income does not fall below your state's median income, then your income will then be factored into a formula. Your formula results will determine your ability to file for Chapter 7.
Means Test Formula
Under the Means Test, any creditor, trustee or judge will look at your monthly income, minus certain living expenses like food and rent. Your Chapter 7 bankruptcy will likely be successful if you are unable to pay at least $6,000 over the next five years ($100 per month). However, if you can pay at least $10,000 over five years ($166.67 per month or more) your Chapter 7 will likely be denied.
If you could afford more than $6,000 but less than $10,000 over five years, then a mathematical calculation determines whether your Chapter 7 will likely be successful or not. If you could afford to pay 25% or more of your unsecured debt, then a Chapter 7 will likely be denied. If you can't afford to pay 25% of your unsecured debt, your Chapter 7 filing will likely be successful. Examples of unsecured debts would include medical and credit card bills. Note that you can still opt for Chapter 13 in either of these cases.
You should be aware that the new bankruptcy law lets the government decide what is best for you. The updates take away discretion from the Judges to judge cases based on individual circumstances. It is doubtful that the courts can make exceptions for results.
Six figure student loans. Credit card sharks in cahoots with colleges. Ambitious young people today must take on unprecedented debt simply to reach the middle class.
A college education, once the key to middle-class respectability, has become an albatross wrapped around the necks of millions of Americans trying to keeping their heads above water in this uncertain economy. The average college grad owes approximately $20,000. People who had to borrow their way to a graduate degree are already in the hole $45,000; median debt for grad students has increased 72 percent since 1997. "The next generation is starting their economic race 50 yards behind the starting line," says Elizabeth Warren, a Harvard Law School professor and author of The Two-Income Trap. "They've got to pay off the equivalent of one full mortgage payment before they can make it flat broke, just to pay for their education."
Student loans more than 7 years old used to be dischargeable in bankruptcy under certain circumstances. However, an appropriations bill passed in 1998 removed this provision. Currently, student loans may be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents." Sadly, it is nearly impossible to meet the burden established by the "undue hardship" exception. For example, a student loan debtor who had nerve damage, bronchitis and arthritis, and whose daughter had epilepsy, mother had cancer, and grandchildren had asthma, failed to convince the bankruptcy court to discharge her student loans.
Similarly situated Canadians have had enough. Drowning in debt and feeling like second-class citizens, some Canadians carrying hefty student loans say their rights are being violated, and they're challenging bankruptcy laws under the Charter of Rights and Freedoms, the analogue to the United States Constitution.
The Canadian Federation of Students is waiting for its day in court after it launched a charter challenge on behalf of student loan debtors. Student loan debtors are currently lumped in with criminals and deadbeat parents as the only citizens with restrictions on declaring bankruptcy. Ironically, Canadian law is not nearly as draconian as the United States restrictions on discharging student loan debt.
The college student has another financial bogeyman, the credit card shills that swarm American college campuses. The colleges make millions off the credit card companies for the privilege of setting up kiosks on campus to market their cards.
Adding insult to injury, Federal Pell Grants are more difficult than ever to obtain. In 1980, the average Pell Grant covered 77 percent of the cost of an undergraduate education; today, it's 40 per cent. The Department of Education recently revised its eligibility guidelines which will reduce financial awards and exclude 84,000 people from the program entirely.
Wealthy kids whose parents paid for their education start their lives debt free. The rest of Americans trying to avoid middle class poverty are stuck treading water with the waves of Sallie Mae, Nellie Mae and Citibank crashing down on them.
Beyond a Chapter 13 consolidation, the bankruptcy code cannot assuage the burden of overwhelming student loan debt. Higher education may mean a lifetime of loan-indentured servitude. The system punishes the young who strive for a better life via higher education. And change is not likely in the near future. The political tradewinds are not influenced by the plight of American's young and the presidential candidates have not offered any solutions. Sadly, American youth pay their "ambition tax" in silence.
Source: The Ambition Tax by Kenner Koerner, The Village Voice
Recent Developments in the Law Regarding Debt Consolidation Services
Consumers looking to debt consolidation services as a way to avoid filing bankruptcy need to consider some of the "hidden" dangers inherent in such services before making the decision to consolidate debt. Three recent judicial decisions in California, Washington and Connecticut illustrate some of these concerns.
In Simmons v. Daly, Murphy & Sinnot Law Center, 2003 WL 21267184 (Conn. Super. May 15, 2003), plaintiff Simmons sued the defendant debt consolidation service she had retained to reduce her overall debt. Simmons had seen a television advertisement for the debt consolidation service offered by the Law Center, and called the telephone number shown. The Law Center assured Simmons that it would negotiate a settlement with her creditors, whereby those creditors would accept an amount less than their claims against her. The Law Center stated that as its fee for its services it would charge Simmons nearly a third of the amount by which it was able to reduce her creditors' claims. The contract Simmons signed with the Law Center authorized electronic transfers directly from her checking account to the Law Center. In a period of approximately five months, the Law Center received over $2,300 from Simmons' account. Then, in April 2001, Simmons was sued by one of her creditors. She realized she would have to file bankruptcy, and did so. The attorney Simmons hired to file her bankruptcy petition attempted to gain an accounting from the Law Center of the services they had performed for Simmons, but no accounting was ever provided. In fact, the court noted that there was no evidence that the Law Center had ever even contacted Simmons' creditors in an effort to negotiate reduced claims. The court held that the Law Center had engaged in deceptive acts or practices in violation of Connecticut's consumer fraud statute, and awarded damages to Simmons.
In two other recent decisions, Acorn v. Household International, Inc., 211 F.Supp.2d 1160 (N.D. Ca. 2002) and Luna v. Household Finance Corp. III, 236 F. Supp. 2d 1166 (W.D. Wash. 2002), courts held that certain terms of agreements signed by consumers who consolidated their debt into home loans were unconscionable and therefore unenforceable. In Acorn, plaintiffs -- a community organization of low and moderate-income families and individual customers of the bank -- sued the bank for fraud, deceit, negligent misrepresentation and unjust enrichment. They alleged that the defendant bank engaged in predatory lending practices by targeting homeowners struggling with credit card debt, tricking them into consolidating their debt into high cost loans secured against their homes, and trapped them into their loans by "upselling" the loans to amounts so high in relation to the value of the customers' homes that they could not refinance with any of the bank's competitors. In Luna, plaintiffs alleged that the bank misled them into entering loans with interest rates higher than those initially promised, and sued the bank for violations of the Washington Consumer Protection Act, the Real Estate Settlement Practices Act, the Truth in Lending Act, the Homeowners Equity Protection Act, as well as common law fraud and emotional distress. In both Acorn and Luna, the bank moved to dismiss plaintiffs' claims on the basis of an arbitration provision contained in plaintiffs' loan agreement. Relying on that arbitration provision, the banks claimed that plaintiffs were prevented from suing in court. Both the California and Washington District courts ruled that the arbitration provision was fundamentally unfair to the consumers, and therefore unconscionable and unenforceable.
Luna, Acorn and Simmons all demonstrate some of the harms that can befall unwary consumers looking to consolidate their debts.
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. THIS IS IN NO WAY GIVING ANY LEGAL ADVICE OR REPRESENTATION. THE INFORMATION CONTAINED HEREIN WAS COMPILED FROM VARIOUS ARTICLES. FOR ANY LEGAL ADVICE OR REPRESENTATION SEEK YOUR OWN LEGAL COUNSEL.