Bankruptcy and Student Loans

Ahh, the American dream. You start with nothing, get an education, work your assets off, and end up rich and successful. But is that really how it goes? Everyone knows that it is absolutely critical that you get a good education in order to get ahead. The average price of a college education can range anywhere from  $24,610 to $49,320! So what happens when you have little to no money yet need a college education or advanced degree to live the American dream? Many times, you take out student loans. And sometimes you end up living the American nightmare instead of the American dream. You find yourself drowning in student debt and despair.

Does that mean that you are you destined to drive a truck, work in the factory, be a farmworker, waitress, or work construction forever? Or that you have to always live near the poverty line in order to pay back your student loans?

We don’t think so. We believe that the poor should have access to good financial advice and be empowered with the financial information they need to not be taken advantage of when it comes to student loans or anything else.

Student Loan Debt.

We know that it is difficult to discharge student loan debt in bankruptcy. Most debtors won’t be able to discharge student loan debt through a Chapter 7 or Chapter 13 filing. But that does not mean you don’t have any options or possibilities.

The Undue Hardship Test.

Most courts are reluctant to discharge student loan debt. However, if you can qualify for the “undue hardship” exception, you may get your student loans discharged in bankruptcy. To qualify for undue hardship in Oregon, you have to be able to prove to the court that:

  • You have no money left over each month to pay your student loans
  • Your money problems aren’t going to get any better in the future
  • Over the years, you made a good faith effort to repay your student loans.

If you can answer these and other questions honestly, you may be able to qualify to have your student loans discharged.

Defenses to Student Loan Debt.

Another possible source of relief from student loan debt lies in unfair and illegal treatment. If you have defenses, such as a breach of contract, unfair business practices or fraud against your loan companies, you may not have to pay the debt at all.

Learn Your Options.

When it comes to student loan debt, there is no magic wand you can waive to get rid of them. But that does not mean you do not have hope or options. We are Oregon and Washington bankruptcy attorneys. We offer free consultations and we can help you. To set up an appointment, call us toll free at: 1-800-682.9568.

Bankruptcy and Medical Bills

 

As the old saying goes, “nothing is more important than your health.” When you are injured or sick, you know how true that is. When you or a loved one is facing a serious or catastrophic illness, the cost of medical care can very quickly skyrocket. Before you know it, the costs of medical care can drive you into bankruptcy.

If that’s your situation, don’t despair. We can help. A significant number of people file bankruptcy every year due to crushing medical bills. At least one study has found that nearly 1 billion people filed bankruptcy due to medical costs.

In fact, filing bankruptcy may not only be a good choice for you if your medical bills have gotten out of control, but looked at correctly, it is the right thing to do.

How can that be?

Because overwhelming medical bills are exactly the type of debt that the bankruptcy code was designed to address. The whole point of bankruptcy is to give an honest debtor relief from overwhelming and insurmountable debt. When your mountain of bills was caused by an accident or serious illness, that’s not something you deliberately sought out. It’s not your fault. It very likely could not have been avoided or foreseen. After the illness or injury, you needed medical attention to recover. Now you need bankruptcy to recover from the insurmountable costs of health care.

How Medical Debt Is Classified in Bankruptcy.

So, will bankruptcy erase all of your medical bills? Yes. When you file for bankruptcy, your debts are separated into different categories. Some debts, like child support or alimony, are not dischargeable (in other words, can’t be wiped out). But other debts, like credit card debt and medical bills are considered unsecured debt and do get discharged in bankruptcy.

Chapter 7 and Medical Bills.

Chapter 7 (often called “liquidation bankruptcy”) is the most common type of bankruptcy filed by individuals. To qualify for a Chapter 7, you must pass a “means test.” That is to say, you must be at or below a certain disposable income level. If you are, then you can qualify for Chapter 7. If you qualify for Chapter 7, there is no limit to the amount of amount of medical debt that a Chapter 7 discharge can wipe out. Just like credit card debt, medical debt is considered unsecured debt that is dischargeable. And any medical bills that you paid with your credit card can also be discharged.

In Chapter 13 Bankruptcy

Unlike a Chapter 7 which is designed to liquidate your assets and pay off your debts wiping the slate clean, a Chapter 13 bankruptcy is designed to put a repayment plan in place (“Chapter 13 Plan” or “Plan”) that will allow you to pay off your creditors over time. In a Chapter 13, your medical bills are lumped in with all the other general unsecured debts in your Plan. The amount you have to pay to general unsecured creditors depends on your income, expenses and nonexempt assets.

In Chapter 13, each creditor receives a pro rata portion of the total amount going towards these debts in your plan which is typically only pennies on the dollar. However, keep in mind that you may not qualify for Chapter 13 if your medical bills and other debt exceed the Chapter 13 limits.

We Can Guide You To The Right Decision.

If you are facing insurmountable medical bills, we can help. We have offices in Portland, Eugene, Coos Bay, Medford, and other cities in Oregon and we have offices in Washington. We offer free consultations and reasonable rates. Contact us by phone or email anytime to set up your free consultation.

What You Can Keep After Filing for Bankruptcy

 

Many people believe that they will lose everything they own if they file for bankruptcy. Not true. In fact, most people who file for bankruptcy do not lose anything they own at all.

How can that be?

Well, the secret lies in…

Exemptions.

Most consumers file for Chapter 7 (or “liquidation”) bankruptcy. In a Chapter 7, exemptions determine what property you get to keep. If your property is exempt, whether it is your home, your car, your pensions, furniture, your clothes, etc., you can keep it during and after the bankruptcy. Exemptions protect your property and put it beyond the reach of the bankruptcy trustee (“trustee”).

If the property is nonexempt, then the trustee is entitled to sell it to pay your unsecured creditors.

In a Chapter 13 bankruptcy, it is the exemptions that determine how much you will have to pay to nonpriority, unsecured creditors.

If you are considering bankruptcy in Oregon or Washington, it’s important for you to understand how exemptions work and to know what property is exempt in those states. We can help. We have offices in Tigard, Salem, Albany, Grants Pass, Klamath Falls, Bend, and several other cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington.

A Little More About Exemptions.

Every state has its own set of bankruptcy exemptions and most states require that you use the state exemptions only. However, some states allow a debtor to choose whether to use state exemptions or federal bankruptcy exemptions. Like all states, Oregon has its own set of bankruptcy exemptions. But in Oregon, if you file for bankruptcy you can elect to use the federal bankruptcy exemptions instead of the Oregon state exemptions. In Washington, you can use either the federal exemptions or the state exemptions.

How Exemptions Work.

There is a lot to know about exemptions, but briefly, this is how it works: if you have property that is worth a certain dollar amount that is equal to or less than the exemption, you will be allowed to keep the property. If, on the other hand, the property’s value exceeds the exemption, it is highly likely that the trustee will sell that property and use it to pay your unsecured creditors. Why? Because the federal government assumes that honest debtors try to pay off their debts. So, if a debtor has excessive property, the federal government believes it should be sold to pay those debts. On the other hand, the bankruptcy laws are designed to give debtors a “fresh start” —– not to leave them destitute. As a result of these dual concepts, both state and federal bankruptcy laws provide debtors with property exemptions.  Generally, Chapter 7 exemptions are far lower, stricter and are less flexible than Chapter 13 exemptions.

 We Can Guide You Through It.

If you are considering bankruptcy and want to know what property exemptions you would be entitled to, contact us. We have offices throughout Oregon and in Washington, and we offer free consultations.

 

 

Bankruptcy in the Context of Divorce

 

Statistics show that 55% of all marriages end in divorce. And 39% of all divorced couples say that conflict over finances was the reason the marriage fell apart. Fights over money ruin relationships. That’s why we so often see divorce occurring when there is a bankruptcy. It’s because of this that it is critical to understand the intersection of the bankruptcy laws and divorce laws.

 What Comes First – Divorce or Bankruptcy? No Simple Answer.

If you are facing divorce and a bankruptcy, the first thing you need to consider is timing. You must decide whether to file for divorce first or for bankruptcy first. (Filing the two together causes significantly more problems.) How you answer that question depends on a number of things: your income, your spouse’s income, what type of bankruptcy you are filing for or qualify for (Chapter 7 or Chapter 13), what assets you have, the costs of divorce and bankruptcy, and more.

There is no easy answer to this question. You must take into account both the facts of your situation, the divorce laws, and the bankruptcy laws before you can come to a final decision. That’s why you should sit down with an experienced bankruptcy attorney to discuss your situation and what is best for you. We have offices throughout Oregon and in Washington, and we offer free consultations.

Here are just two things you need to think about when facing bankruptcy and divorce:

Divorce and the Automatic Stay
Once a bankruptcy is filed, whether it is a Chapter 7 or a Chapter 13, the “automatic stay” immediately goes into effect. The automatic stay stops all attempts to collect on your debts and it freezes your assets and your property. The purpose of the stay is to allow the bankruptcy court time to sort through what debts you owe and what assets you have (if any) to pay them with. The automatic stay remains in place until your bankruptcy case is fully resolved (by discharge, dismissal or the case is closed).

Since dividing up a couple’s assets and property (in addition to other things) is what the divorce is all about, bankruptcy’s automatic stay means that the family court will be prevented from making any decisions or dividing up the marital property until the bankruptcy is completed. And that means that the divorce will take longer.

 What Type of Bankruptcy?

Another factor to consider is the type of bankruptcy that you should file for. A Chapter 7 (“liquidation”) bankruptcy requires that you meet the income requirements of the “means test.” If your income compared to certain expenses is too high, you will be required to file for Chapter 13 (“reorganization”) bankruptcy instead.

If there is a big difference between what you earn and what your spouse earns, it might make more sense to file for divorce before you file for bankruptcy. On the other hand, if you earn significantly less than your spouse and you file for bankruptcy individually after the divorce is final, you may have a better chance of qualifying for Chapter 7 bankruptcy.

Then there is the fact that if you both agree to file for bankruptcy jointly, you may not qualify for Chapter 7 as a couple, because the income amounts are based on household size, and the income maximum for two people is not twice that of one person.

The intersection of bankruptcy and divorce may be a common occurrence, but it is not a simple one to navigate. But the good news is that you do not need to try to figure all this out on your own. We are here to help.

 Let Us Help You Decide.

If you are facing filing a bankruptcy and either your spouse has filed for divorce, or you have both agreed to divorce, let us help you think through your options. We are bankruptcy attorneys with offices in a number of cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington. We offer free consultations and we can help you. To set up an appointment, call us toll free at: 1-800-682.9568 or contact us here.

What the Automatic Stay Can and Cannot Do

 

One of the immediate benefits of filing bankruptcy is the relief that the Bankruptcy Code’s “automatic stay” gives to a debtor. The automatic stay brings all collection efforts against the debtor to a screeching halt. It prevents creditors from collecting on their debts until discharge, the case is closed, or the stay is lifted. The automatic stay goes into effect immediately— without need for a court order —and it applies to all of the chapters of the Bankruptcy Code. It has a very broad reach. But it’s reach is not limitless.

As you might expect, there are many things the automatic stay can do, but there are also some things it cannot do.

Let’s take a closer look at the powers of the automatic stay.

What the Automatic Stay Can Do.

The automatic stay is found in Section 362 of the Bankruptcy Code. It prevents creditors from taking pretty much any action outside the supervision of the bankruptcy court that would give one creditor an unfair advantage over any other creditor.

Here are just two of the things the automatic stay prohibits:

  • Anyone from bringing or continuing any judicial, administrative, or other action or proceeding against the debtor that either was commenced before the bankruptcy was filed, or which could have been commenced before the bankruptcy was filed.
  • Enforcement of a pre-petition judgment against the estate (i.e., the bankruptcy estate), property of the estate, or the debtor. It prohibits all collection activity including: levies, garnishments, restraining notices and all post-judgment collection remedies.

What the Automatic Stay Cannot Do.

While the automatic stay applies to many actions against a debtor, as we said, it is not limitless. Here are just three things that the automatic stay cannot do:

  • Stop criminal proceedings. The automatic stay does not apply to criminal proceedings or criminal investigations against the debtor.  
  • Prevent tax audits or some actions to collect taxes. The automatic stay does not apply to prevent tax audits, notices or demands. It does not prevent all acts to collect any tax, or to enforce, create or perfect any tax lien. It doesn’t restrict the government from continuing with any tax audits. It won’t prevent the issuance of notices of tax deficiencies or a demand for tax returns or tax assessments.
  • Last forever. Generally, the automatic stay terminates on the happening of one of these events:

1. The case is dismissed;
2. The case is closed;
3. A discharge order is entered or denied by the court;
4. The property is no longer property of the bankruptcy estate; or
5. An order is entered that terminates, vacates or modifies the automatic stay.

Understanding the automatic stay— its reach and its limits —is very important. We have attorneys in Portland, Eugene, Coos Bay, Medford, and a number of other cities in Oregon and in Vancouver and the Tri-Cities in Washington, who can explain the reach of the automatic stay to you.

We Are Here To Help You.

If you are looking for relief from collections calls and creditors coming after you, the automatic stay may give you the break you need. We are experienced bankruptcy attorneys with offices in Washington and throughout Oregon. We offer free consultations, reasonable fees, and are committed to getting our clients the relief they need. To set up an appointment, call us toll free at: 1-800-682.9568 or contact us through our website.

What to Expect in Pre-Bankruptcy Credit Counseling

The decision to file bankruptcy is not an easy one to make. Many people experience enormous distress, shame and embarrassment over their financial difficulties. Without question, declaring Chapter 7 or Chapter 13 bankruptcy is no minor decision. But it just may be the right one for you. Especially if you cannot see any way of paying off your debt in the next 5 years.

Mandatory Pre-Bankruptcy Credit Counseling.

Before you can file for bankruptcy, however, you must complete mandatory credit counseling and receive a certificate. Once you have completed the counseling and have your certificate, you must file it with the court along with your other bankruptcy forms. Credit counseling is mandatory. If you do not file a certificate of credit counseling with the court, the bankruptcy court will dismiss your case.

But why do you have to do mandatory credit counseling?

Its purpose is to ensure that bankruptcy is your only best option. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in response to the fact that many people who were financially capable of repaying their debts were using bankruptcy to have those debts discharged. This new law completely overhauled the bankruptcy law and made a number of important changes to bankruptcy rules and procedures. One of these changes was the requirement that debtors complete credit counseling both before filing bankruptcy and prior to discharge.

The purpose of pre-bankruptcy credit counseling is to provide an impartial look at whether or not a debtor really needs to file for bankruptcy.

The Where, When, and What of Pre-Bankruptcy Credit Counseling.

Pre-bankruptcy credit counseling may be the most painless part of bankruptcy. It can be done in person, by phone, or online; and it usually doesn’t take more than a couple of hours.

The most important thing to remember is that you must complete the counseling before you file for bankruptcy. Upon completion, you will receive a certificate that is valid for 180 days. If you decide to file for bankruptcy, you will need to file that certificate with the court.

For your counseling session, you will want to bring with you (or have available) information about your debts and your income.

The counselor will discuss your financial situation with you and will talk to you about what non-bankruptcy options you may have. Counseling will most likely include:

  • A thorough review of your personal finances
  • A discussion of alternatives to bankruptcy
  • Personal budget plan.

The counseling will help you to understand how bankruptcy works and what you can do to avoid financial risk in the future.

We’ll Walk You Through it!

If you are concerned about whether or not you should file for bankruptcy, or have questions about what happens if you decide to file for bankruptcy, give us a call. We offer free consultations. We are experienced bankruptcy attorneys with offices in Tigard, Salem, Albany, Grants Pass, Klamath Falls, Bend, and several other cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington. You can call us toll free at: 1-800-682.9568.

Consumer Credit Scores and Federal Law

Most Americans are all too familiar with credit scores, but for those who aren’t, credit scoring is a system creditors use to determine whether or not to extend credit. Credit scores also factor in to how lenders determine loan terms or rates. The Fair Credit Reporting Act (FCRA) is the federal legislation which promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. It’s important for you to be aware of the rights you are afforded under FCRA. The following are some key points to keep in mind:

  • You must be told if the information in your files has been used against you. Anytime a lender or other financial institution uses your credit report or any other type of consumer report to deny your application for credit, insurance, or employment, they must let you know. They must also give you the name, address, and phone number of the agency that provided them with the information.
  • You have the right under FCRA to know what is in your file. You are entitled to request and obtain all of the information about you that is contained in the files utilized by a consumer reporting agency. To receive this information you are required to provide proper identification. Furthermore, you are entitled to a free file disclosure if:
  • Adverse action has been taken against you based on information in your credit report
  • You are the victim of identity theft
  • Your file contains erroneous information resulting from fraud
  • You are on some kind of public assistance
  • You are unemployed but planning on applying for employment within 60 days
  • No one can provide your employer with information relating to your credit report without your consent. Also, a consumer reporting agency can only provide information about you to parties with a valid need to know. Under FCRA, access to your credit files is limited.

 

Reaffirmation of Debts: What, When, and Why

Reaffirmation is a way to keep certain assets during a bankruptcy that you might otherwise have to forfeit.  A Chapter 7 discharge will wipe out your personal liability for dischargeable debts (including mortgages and auto loans). However, if you are current on the monthly payments and want to keep the item the creditors will routinely forward a new agreement with the original terms (or sometimes even slightly better terms) for you to sign thus reaffirming those terms in a new contract.

When you finance the purchase of a home or a car the lender will have a lien on the house or car (it is their collateral for the loan).  Under a Chapter 7 debt discharge scenario, the lien remains attached to the collateral, and the creditor will still have the right to foreclose or repossess if you don’t make your payments. Debts like these (where your property can be held until the loan is repaid) are called secured debts.

When you reaffirm a secured debt, you are in essence signing a new agreement that reaffirms your personal liability on the loan. In other words, you are signing away your discharge rights on the debt you are reaffirming. This is a serious commitment and one that you should consider carefully. It is advisable to consult with your bankruptcy attorney before taking this step. Keep in mind that a reaffirmation agreement must be filed within 60 days after the meeting with the bankruptcy trustee.

Here are some reasons why you might want to reaffirm a debt:

  • Rebuild your credit. When you reaffirm a debt, your payments on that loan will continue to be reported to the credit reporting agencies by the lender; this will aid you in the credit rebuilding process.
  • Opportunity to renegotiate with lender for more favorable loan terms since the reaffirmation constitutes a new contract.
  • Prevent repossession or foreclosure when you want to continue making payments on the loan.

What Your Credit Union Won’t Tell You

“The hogtie is a method of tying the limbs together, rendering the subject immobile and helpless. Originally, it was applied to pigs (hence the name) and other young four-legged animals[i].”

If you are a member of a credit union there is a good chance you have been hogtied by them without even knowing it.  Many of you believe that the money deposited in your credit union account is yours to do with as you please.  I am sorry to say you are sadly mistaken.  In Oregon and Washington credit unions operate by their own set of laws[ii].  Both states allow credit unions to assert liens on the accounts and to take your money when they feel like it.  It is called “cross collateralization[iii].”

For example – A client recently had his checking account frozen at a local credit union because his wife had told a friendly teller she was “worried about how they were going to make the truck payment due later that month and maybe it would be better just to turn the truck in” [ie. give it back to the credit union].  Unfortunately while she was telling this to the teller her husband had over $5,000 in his account and was in fact current on the truck and the visa they had with the credit union.  Despite all of this they froze his account, denied him access to the funds and left him in limbo.  When asked about the legality of the credit union’s actions their lawyer’s reply was short and simple, they cited ORS 723.454.  This Oregon law that gives credit unions an automatic lien on your accounts – and thus makes it legal for them to take your money even though you are not in default on any loans with them.  Don’t breathe easy if you’re in Washington, they have the same law (RCW 31.12.416).

Another client ran into financial trouble and missed her credit card payment to her credit union.  In response they froze all of her accounts, seized the money and applied it to the credit card debt.  She could live with that but when they took the money from her kids’ separate accounts she felt they had crossed the line.  She tried explaining it was not her money it was birthday money from grandparents and allowance money the kids had saved up.  When the credit union was contacted they again cited the lien statute and said because the mother’s name was on the account they could seize the funds.

It’s one thing to go knowingly into an agreement fully aware of all the ups and downs.  It’s another to have them glossed over and their meaning minimized.  Years ago I needed a short-term loan from my credit union to purchase a car.  As I was reading the contract (I am a lawyer after all) I saw the words “cross collateralization.”  When I asked the young credit union clerk what that meant she smiled excitedly and replied “it means you could come down and get a visa credit card without even filling out an application!”  I started to reply asking “But, if I default on my car loan does it mean you could then clean out all of my accounts?”  But after the word “default” my wife grabbed my leg under the table which in those situations means “don’t interrogate the nice young clerk who is giving us a loan” so I stopped my question, smiled and thanked her for the loan.

The moral of the story is that while some credit unions may do a fair job of managing your accounts you should never (and I mean NEVER) borrow money from the one where you primarily do your banking.

[i] https://en.wikipedia.org/wiki/Hogtie

 

[ii] (ORS Chapter 723 “Credit Unions” for Oregon and RCW 31.12 “Washington State Credit Union Act” in Washington).

[iii] https://en.wikipedia.org/wiki/Cross-collateralization