Blogs

3 weeks 5 days ago

By Ben Miller

Millions of students will arrive on college campuses soon, and they will share a similar burden: college debt. The typical student borrower will take out $6,600 in a single year, averaging $22,000 in debt by graduation, according to the National Center for Education Statistics. 

There are two ways to measure whether borrowers can repay those loans: There’s what the federal government looks at to judge colleges, and then there’s the real story. The latter is coming to light, and it’s not pretty. 

Consider the official statistics: Of borrowers who started repaying in 2012, just over 10 percent had defaulted three years later. That’s not too bad — but it’s not the whole story. Federal data never before released shows that the default rate continued climbing to 16 percent over the next two years, after official tracking ended, meaning more than 841,000 borrowers were in default. Nearly as many were severely delinquent or not repaying their loans (for reasons besides going back to school or being in the military). The share of students facing serious struggles rose to 30 percent over all. 

Collectively, these borrowers owed over $23 billion, including more than $9 billion in default.
Nationally, those are crisis-level results, and they reveal how colleges are benefiting from billions in financial aid while students are left with debt they cannot repay. The Department of Education recently provided this new data on over 5,000 schools across the country in response to my Freedom of Information Act request.

The new data makes clear that the federal government overlooks early warning signs by focusing solely on default rates over the first three years of repayment. That’s the time period Congress requires the Department of Education to use when calculating default rates.
At that time, about one-quarter of the cohort — or nearly 1.3 million borrowers — were not in default, but were either severely delinquent or not paying their loans. Two years later, many of these borrowers were either still not paying or had defaulted. Nearly 280,000 borrowers defaulted between years three and five.
Federal laws attempting to keep schools accountable are not doing enough to stop loan problems. The law requires that all colleges participating in the student loan program keep their share of borrowers who default below 30 percent for three consecutive years or 40 percent in any single year. We can consider anything above 30 percent to be a “high” default rate. That’s a low bar.
Among the group who started repaying in 2012, just 93 of their colleges had high default rates after three years and 15 were at immediate risk of losing access to aid. Two years later, after the Department of Education stopped tracking results, 636 schools had high default rates.
 For-profit institutions have particularly awful results. Five years into repayment, 44 percent of borrowers at these schools faced some type of loan distress, including 25 percent who defaulted. Most students who defaulted between three and five years in repayment attended a for-profit college. 

The secret to avoiding accountability? Colleges are aggressively pushing borrowers to use repayment options known as deferments or forbearances that allow borrowers to stop their payments without going into delinquency or defaulting. Nearly 20 percent of borrowers at schools that had high default rates at year five but not at year three used one of these payment-pausing options.  

The federal government cannot keep turning a blind eye while almost one-third of student loan borrowers struggle. Fortunately, efforts to rewrite federal higher-education laws present an opportunity to address these shortcomings. This should include losing federal aid if borrowers are not repaying their loans — even if they do not default. Loan performance should also be tracked for at least five years instead of three. 

The federal government, states and institutions also need to make significant investments in college affordability to reduce the number of students who need a loan in the first place. Too many borrowers and defaulters are low-income students, the very people who would receive only grant aid under a rational system for college financing. Forcing these students to borrow has turned one of America’s best investments in socioeconomic mobility — college — into a debt trap for far too many.

Copyright 2018 The New York Times Company.  All rights reserved.


1 month 18 hours ago

If you are about to lose your home to foreclosure, it is a good reason to start thinking about bankruptcy as a fresh start. Make sure to consult with a qualified bankruptcy attorney immediately. If you wait too long, it may be too late to save your home. Starting the bankruptcy process can halt the foreclosure process, which may give you the necessary time to save your home.
The post ​Is Bankruptcy the Best Way to Avoid Foreclosure and Keep Your Home? appeared first on Tucson Bankruptcy Attorney.


1 month 21 hours ago

PARKER, Colo. (CBS4) – The Federal Reserve estimates that student loan debt is a $1.5 trillion problem in America. This debt is sinking many families into bankruptcy, but a new interpretation of the law may be offering some relief.

Paige McDaniel decided to go back to school to get a bachelors and masters degrees in business administration. She chose the online program at Lakeland University.

“I didn’t want a publicly traded school. I wanted a school that was an actual university, and had a focus on academics,” McDaniel told CBS4.

She took out federal student loans to cover the cost of her bachelors and masters degrees in business administration.

“You’re always raised, the more education you have the better off you’re going to be,” she explained.

In addition to the federal student loans, McDaniel signed up for about $120,000 in private student loans.

“Started getting direct mail from Sallie Mae, who had my federal loans at the time, offering additional loans to help with additional expenses, so I did take out some of those loans as well,” McDaniel said.

She didn’t realize the loans were different. Federal student loans have a fixed interest rate, and manageable repayment options. Private education loans have a variable interest rate, and no repayment help.

“That one mistake is…is the biggest regret of my life, and has hurt my family, to the point where it would have been better for me not to get the degrees,” McDaniel said.

She soon found herself in over her head. The loan servicing company was billing her $1500-a-month just on the private loans. She ended up declaring Chapter 13 bankruptcy, but even that didn’t help. She paid on the loans through the proceeding, but still came out owing more than she borrowed.

“We knew the federal loans could not be dismissed, but the private loans were supposed to be,” she explained.

Traditionally, in bankruptcy court, any loan with the word “student” associated with it has not been dismissed. New York lawyer, Austin Smith, has a different take on the law.

“These loans that we’re litigating, these are just like credit card debt. It’s the exact same thing as if a bank gave a student as credit card,” Smith explained.

He argues that private loans that are not used for education expenses, should be treated like any other personal debt, and be dismissed in bankruptcy.

“We have not lost on this issue yet,” Smith told CBS4.

Navient Solutions holds McDaniel’s loans, and is one of the largest student loan servicers in the country. It’s facing several lawsuits about it’s lending practices including those filed by Attorneys General in Illinois, Washington, Pennsylvania, and California. It’s called the allegations in those cases unfounded, and in a statement to CBS4 about McDaniel’s proceeding, it said:

“It went from this is the solution, not one we wanted, but this is the solution, to we’re in worse shape than we were before,” McDaniel said.

Her payments are on hold pending a court decision, but the balance keeps ticking up. It’s at more than $260-thousand now.

“I can’t breathe when I look at it. It’s a panic. There’s no way out of this,” she said.

Colorado Congressman Jared Polis has introduced a bill designed to keep student from getting into this situation. The Know Before You Owe bill would require Universities to counsel students on the difference between federal and private loans before they sign up for them.

©2018 CBS Broadcasting Inc. All Rights Reserved.


1 month 21 hours ago

By F.H. Buckley   American higher education badly needs reform. Over the past two decades, universities have regarded the availability of hundreds of millions of dollars in federal student loans as an excuse for staggering tuition increases. Now students graduate with intolerable levels of debt, in an economy where they often can’t find jobs to pay it back. And too many universities have become political-indoctrination factories or intellectual babysitters instead of providing useful educations and preparing students for the adult world.
But there’s a silver bullet that could cure all three ailments: bankruptcy.
In an entrepreneurial society, it’s essential to know that you can take risks and, if you fail, there is a path to try again. The ability to declare bankruptcy as a last resort and to start afresh has long been a vital element of American dynamism, yet it is denied to young people who borrow for their education.
That wasn’t always the case. Until the late 1970s, Americans unable to pay off education loans were permitted to dispose of them with a Chapter 7 bankruptcy petition. That changed in 1978 when U.S. bankruptcy rules were overhauled. Defaults on student loans weren’t a significant problem — tuition was much lower then, and jobs awaited most graduates — and legislators simply decided that it was a bit much to expect the government to guarantee loans and then absorb the cost of bankruptcy.
No one thought that we’d see anything like today’s student-debt levels or that bankruptcy rights for education loans would be desperately needed.
In assessing 20 years of tuition increases, U.S. News & World Report found last year that tuition at national universities (defined as those with a full range of undergraduate majors and master’s and doctoral programs) spiked 157 percent for private institutions. At public national universities, out-of-state tuition and fees rose 194 percent, while in-state tuition and fees swelled 237 percent. Inflation across that period was 53 percent.
As the cost of education mounted, so did the student debt load. Since 2006, the amount that Americans owe in education loans has tripled, to $1.53 trillion, according to the Federal Reserve. Once again, ill-advised government interventions played a role, including the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which barred private student loans from protection, and the Affordable Care Act, which in 2010 largely made the government directly responsible for student loans. About 80 percent of student loans are owed to the feds.
If many millennials have been radicalized, if they’ve given up on free markets, it’s hard to blame them. They’ve been slapped in the face by free markets in the form of the student-loan racket. What many young people need is relief from overwhelming debt burdens through bankruptcy.
Private lenders would object, naturally, as would people who’ve struggled to pay off some or all of their student debt. Problems like that arise whenever a country transitions to a more efficient regime, but it shouldn’t get in the way of urgently needed reform. The U.S. deficit would increase if direct government loans were made dischargeable. But it’s not as though everyone would stop paying off student loans: Declaring bankruptcy comes at the price of damaged credit ratings and years of being unable to obtain loans or credit cards, or doing so at much higher interest rates. Most people who have jobs and are able to continue paying their loans would want to avoid bankruptcy. But countless other young Americans would be liberated from debt and more likely to invigorate the economy, helping make up for government’s added costs.
What about the universities themselves? They’ve created the problem, and they should be part of the solution: Hold them financially accountable, in whole or part, when their graduates declare bankruptcy on student loans. Universities should be given time to clean up their acts — say, until 2020 — and after that they would have to agree to indemnify the federal government for student-loan bankruptcies. Schools would think twice before running up the tuition tab. They might even start bringing it down.
Universities might also rethink the kinds of courses they offer. If they bore some or most of the cost of bankruptcies, they no doubt would start paying close attention to whether their graduates can get jobs. Too many universities offer too many frivolous courses, and majors, that make employers run the other way from applicants. Such graduates aren’t good bets to repay their loans. If the university bore the financial risk, it would almost certainly change what it teaches.
Would all this be thoroughly disruptive? Most certainly. But U.S. higher education badly needs a measure of creative destruction.
© 1996-2018 The Washington Post.  All rights reserved.


1 month 1 day ago


Since February 5, 2018  debtors filing bankruptcy in Nebraska have been allowed to sign their petitions and other court documents using digital signatures pursuant to  General Order 18-01.  So what have we learned about the use of  digital signatures in bankruptcy since then?
I recently had the pleasure of speaking to an official at the Administrative Office of the U.S. Courts who was seeking some feedback on how digital signatures were affecting the bankruptcy practice. (Nebraska is the only bankruptcy court the nation that allows debtors to sign documents digitally.)  Here are some of my observations:

  • Clients absolutely love the convenience of signing documents digitally.  They no longer have to take time off work or drive through sometimes hazardous weather to sign documents.
  • Debtors are able to review documents in a less hurried fashion.  Instead of feeling rushed to sign documents in front of an attorney without much chance to review the paperwork, debtors are now able to read the information at their leisure and they frequently point out errors and omissions.  Although some critics of using digital signatures worried that debtors would just click on “Sign Here” buttons without reading the content, my experience is that clients tend to read the paperwork more thoroughly when they don’t feel rushed and they tend to ask questions or demand corrections when the information is not accurate.
  • Debtors receive a full copy of what they sign immediately.  I think the courts would be shocked to learn how many debtors NEVER receive a copy of what they signed (even though bankruptcy rules say they must receive a copy).
  • The temptation to alter signed documents is gone.  A dirty little secret of bankruptcy attorneys is that they alter the content of bankruptcy schedules after they are signed.  Why do they do this?  Because they are fixing errors and adding missing creditors and, generally, improving the accuracy and quality of the petition.  The problem is, they don’t get updated signatures after the changes are made to signed documents.  And since they often fail to provide clients with a copy of the documents they signed, who is the wiser? Digital signatures prevent such changes because clients get a copy of what they signed immediately and it is easy to spot unauthorized changes.  Also, since digital signatures allow attorneys to get updated signatures so quickly the temptation to make unauthorized changes goes away.
  • Postage and copy expenses decrease for attorneys.  Once we started using digital signatures (we use DocuSign) we began to question why we could not send most general correspondence to clients digitally.  Why is this better than email?  Because you can have your client sign off that they received whatever you sent them. We discovered that the cost of the digital signature service is more than offset by the savings in postage.
  • We make debtors sign more documents.  For example, debtors must attend a court meeting about 30 days after their case is filed to meet the Trustee assigned to their case and to provide the trustee with identification, bank statements, etc. Frequently clients would show up in court without ID or bank statements and the Trustee would not conduct the meeting. Clients would be frustrated and say they never got our letter advising them of what to bring to court. Digital signatures changed that. When a client signs something the excuses stop.  They become more accountable.  And since it is so easy to get a client to sign off on warnings you give them and disclosures they need to know, we seem to solicit more signatures on a daily basis.  Digital signatures literally allow us to “get on the same page” with our clients.

Digital signature technology is allowing us to make debtors annotate bank statements with explanations and then we require them to sign the document.

  • Bank Statement explanations.  Part of a bankruptcy attorney’s job is to verify the income of a debtor, and we must collect 6 months of bank statements and scrutinize large deposits and expenses.  It is not uncommon to collect statements totaling a hundred pages, especially if clients have multiple bank accounts.  With digital signature services we are able to highlight large deposits and expenses in these bank statements and make a client fill in a text box to explain the source of the deposit or the purpose of the expense. So digital signature technology is allowing us to make debtors annotate bank statements with explanations and then we require them to sign the document.  Talk about accountability! These documents really come alive when debtors must write explanations and sign the document as opposed to just calling the debtor for an explanation only to have the debtor change their story when it turns out the “gift from grandma” deposit was really a paycheck from a source of income they were concealing.

What digital signatures allow us to do is to send a client home with a rough draft of their case and then when they send us the missing documents we can instantly send them an updated petition to sign electronically.

  • Digital Signatures take the pressure out of signings.  Signing a bankruptcy petition is like shooting a moving target. We have to perfectly capture a client’s financial situation on one day of their life, and that is hard since bank account balances change daily and six-month income averages that we must calculate change with every paycheck. Ask any bankruptcy attorney and they will tell you the most frustrating part of their job is getting their client to provide all the necessary documents–tax returns, paycheck stubs, bank statements, etc.  There is always a missing document, but cases must be signed and frequently these signings are made in haste to stop paycheck garnishments and home foreclosures.  So, a bankruptcy attorney is charged with the duty of perfectly stating a person’s financial condition on one day in their life while all the underlying data is constantly changing.  That’s hard to do well.  What digital signatures allow us to do is to send a client home with a rough draft of their case and then when they send us the missing documents we can instantly send them an updated petition to sign electronically. Even when a client lives a few blocks away from my office, I frequently sign the case digitally so they can review a draft of the petition at home when their two-year-old they dragged to the signing appointment goes to bed and then they can send me the missing bank account balances or paycheck stubs the next day. Digital signatures bring sanity to the process.
  • Small town clients get better service.  Nebraska is a big state and 11 of our 93 counties have no attorneys at all, let alone a bankruptcy attorney.  But they do have smart phones and internet services and we can prepare their case as well as any client who lives locally. By the time we used to mail out a paper petition to a client living 450 miles from Omaha and then get a signed copy back, the information was 10 days old.

I have a great concern to live up to my duty to protect the integrity of the bankruptcy process and the integrity of bankruptcy documents in general. And I realize that many folks out there worry that allowing debtors to sign court documents digitally may undermine the trustworthiness of those documents. However, my experience is just the opposite. Digital signatures improve attorney-client communication and increase client accountability. Clients get a full copy of what they sign immediately and that improves transparency. Attorneys are able to get updated signatures quickly when helpful changes are made to petitions. Really, I can’t think of a single negative consequence of using digital signatures in bankruptcy cases, and I suspect we are going to see bankruptcy courts nationwide begin to adopt this technology in the next two years.
 
Image courtesy of Flickr and sbethany09


1 week 3 days ago

Most Tenants Facing Foreclosure Now Have Some Protection, at Least for 90 Days
tenants and foreclosure
On May 24, 2018 a permanent extension of the “Protecting Tenants at Foreclosure Act” (PTFA) was signed into federal law.  The PTFA enables renters whose homes were in foreclosure to remain in their homes for at least 90 days or for the term of their lease, whichever is greater.

The PTFA, enacted in 2009 and originally expired at the end of 2014, was the only federal protection for renters living in foreclosed properties. During the financial crisis, bad faith and fraudulent lending, coupled with falling home prices and high unemployment, resulted in an astronomical high number of foreclosures in the U.S.
Renters lose their homes when the owner of the home they are renting goes into foreclosure.
The impact of these foreclosures was not limited to homeowners, however; renters lose their homes every day when the owner of the home they are renting goes into foreclosure.  Unlike homeowners who know that a foreclosure is coming, renters are completely unaware.  Yet, they continued to pay rent while the homeowner was not paying their lenders.  Many renters can be evicted within a few days of the completion of the foreclosure.
The PTFA gives most renters at least to 90 days’ notice before being required to move after a foreclosure.
tenants and foreclosure
Under PTFA, tenants with Section 8 housing choice voucher assistance have additional protections allowing them to retain their Section 8 lease and requiring the successor-in-interest to assume the housing assistance payment contract associated with that lease.
The law applies in cases of both judicial and nonjudicial foreclosures.
The PTFA applies to all foreclosures on all residential properties; traditional one-unit single family homes are covered, as are multi-unit properties. Tenants with lease rights of any kind, including month-to-month leases or leases terminable at will, are protected as long as the tenancy is in effect as of the date of the completion of the foreclosure.
The PTFA applies in all states but does not override more protective state laws.  Read more…
For more information about the PTFA, see: https://bit.ly/2L55LbE

Some other articles: Protecting Tenants, Arizona law

The post Tenants Facing Foreclosure Protected by New Federal Law appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.


1 week 3 days ago

The Fair Credit Reporting Act “FCRA” and the Bankruptcy Code
The Automatic Stay v. the Bankruptcy Discharge
credit reportingThe Fair Credit Reporting Act “FCRA” and the Bankruptcy Code deal with debt differently and this difference can become confusing for everyone, including experienced bankruptcy attorneys.  For instance, the legal status of a debt changes as a bankruptcy moves to conclusion.  At the beginning of a bankruptcy the automatic stay stops most creditors seizing assets from the bankruptcy estate’s assets without an order from the Bankruptcy Court.   But the debt is still the same as before the bankruptcy was filed.  If the case is dismissed the creditor has all the same rights as before the bankruptcy was filed.  Reporting the debt to the credit bureaus has raised lots of issues in bankruptcy.  Many courts have found there is no liability under the FCRA to report a debt as being in default, at least until the case is discharged.
An order discharging the debt alters the legal nature of the debt and prohibits collection efforts.
credit reportingOnce the order of discharge is entered it “operates as an injunction against the commencement or continuation of an action … to collect, recover or offset any such debt as a personal liability of the debtor.”  Therefore, a discharge order (unlike the automatic stay) alters the legal nature of the debt. Many courts have interpreted the FCRA to require credit reporting agencies “CRA” and furnishers to adjust credit reports after an order of discharge, otherwise be liable under the FCRA (not all courts follow this line of thought).
Reorganizations
Plans of reorganization are a key component of Chapter 11 and 13 cases.  In order for a reorganization to be successful a plan must be confirmed and completed.  The challenge for the courts is to determine how the debts should be reported on a credit report before completion of the plan.  The order confirming the plan binds the debtor and creditors to the plan’s provisions, and controls any contracts that existed before the bankruptcy was filed, including the amount to be paid and lien priority. Once the plan is confirmed the United States Supreme Court determined that creditors may not relitigate their treatment under the plan (basically they already had their shot at the apple).  Although confirmation binds the parties to the plan’s terms, it does so only as long as the case is active and is subsequently discharged.
If a case is dismissed the debts return to the same position as before the bankruptcy was filed, offset by any monies the creditors received during the case.
credit reportingGiven that the bankruptcy is not completed until discharge this raises the issue of whether a credit report can be determined to be inaccurate or misleading if it discloses the pre-petition debt after the bankruptcy court confirms a plan reducing the amount to be paid on the claim, or if it must report the amount established by the confirmed plan (not yet discharged).  You can see the quandary.

The post Discharge vs Automatic Stay and Credit Reporting appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.


1 week 3 days ago

Arizona Supreme Court Decides Statute of Limitations ON CREDIT CARD DEBT / ON INSTALLMENT DEBTS runs from the date of the first uncured missed payment.

Mertola LLC v Alberto J Santos/Arlene Santos CV-17-0109-PR (AZ Supreme Court, 7-27-18)  Statute of limitation for debt collection in Arizona – cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment.
Decision:
Mertola, LLC, sued Alberto Santos and his wife Arlene Santos to collect an outstanding credit-card debt. Although the credit-card agreement gave the creditor the option of declaring the debt immediately due and payable upon default, we hold that even if that option was not exercised, the cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment. Mertola’s claim was barred by the statute of limitations six years after that date pursuant to A.R.S. § 12-548(A)(2).  We vacate the court of appeals’ opinion and affirm the trial court’s summary judgment in favor of Santos. We award Santos reasonable attorney fees pursuant to the Account Agreement and costs pursuant to A.R.S. § 12-341.
debt collectionHistory:
Santos moved for summary judgment, arguing that the claim was barred by the six-year statute of limitations applicable to credit-card debt under § 12-548(A)(2). Santos maintained that the Bank’s cause of action to recover the entire debt accrued after the first missed payment in February 2008. Mertola countered that a missed payment gives the creditor the right to sue only for that payment. According to Mertola, the cause of action for the entire debt could not accrue until the creditor accelerated the debt. The superior court granted Santos’s motion, finding that “all of the breaches” alleged by Mertola “occurred more than six years prior” to it filing this action.
The Arizona Supreme Court reversed a very bad court of appeals decision.
The court of appeals reversed, agreeing with Mertola that Santos’s missed payments, by themselves, gave the creditor the right to sue only for those payments. Mertola, LLC v. Santos, 241 Ariz. 572, 574 ¶8, 575¶ 13 (App. 2017).   The Arizona Supreme Court reversed this very bad decision (yea for them).
What if borrower cures the missing payments?
Consistent with our decision in Gust, Rosenfeld, we hold that when a credit-card contract contains an optional acceleration clause, a cause of action to collect the entire outstanding debt accrues upon default: that is, when the debtor first fails to make a full, agreed-to minimum monthly payment. Accord Taylor v. First Resolution Inv. Corp., 72 N.E.3d 573, 588 (Ohio 2016). This rule will encourage creditors to promptly begin their collection efforts and protects debtors from stale claims. See Navy Fed., 187 Ariz. at 495 (acknowledging the incentive to begin collection efforts when a cause of action accrues at default). But, as we held in Browne, a debtor may cure a default if the creditor accepts a payment of arrearages that brings the account current consistent with the parties’ contract. 117 Ariz. at 75. By allowing the debtor to cure the default, the creditor relinquishes its pending cause of action to collect the debt, and the statute of limitations commences only upon a new default. Partial repayment, however, does not cure the default or reset the limitations period.
Click here to read full decision….

What may still be in question for the future is whether amortized loans with stated payment schedule, each missed payment carries with it a separate statute of limitations timeline as held in Navy Federal v Susan Jones, 187 Ariz. 493, 930 P.2d 1007 (Court of Appeals of Arizona, Division 2 12/26/96)  Decision: We hold that the six-year period commences on the due date of each matured but unpaid installment and, as to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause. 

The post Arizona Supreme Court Gets It Right – Collection on Credit Card Debt appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.


1 week 4 days ago

Arizona Supreme Court Decides Statute of Limitations ON CREDIT CARD DEBT / ON INSTALLMENT DEBTS runs from the date of the first uncured missed payment.

Mertola LLC v Alberto J Santos/Arlene Santos CV-17-0109-PR (AZ Supreme Court, 7-27-18)  Statute of limitation for debt collection in Arizona – cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment.
Decision:
Mertola, LLC, sued Alberto Santos and his wife Arlene Santos to collect an outstanding credit-card debt. Although the credit-card agreement gave the creditor the option of declaring the debt immediately due and payable upon default, we hold that even if that option was not exercised, the cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment. Mertola’s claim was barred by the statute of limitations six years after that date pursuant to A.R.S. § 12-548(A)(2).  We vacate the court of appeals’ opinion and affirm the trial court’s summary judgment in favor of Santos. We award Santos reasonable attorney fees pursuant to the Account Agreement and costs pursuant to A.R.S. § 12-341.
debt collectionHistory:
Santos moved for summary judgment, arguing that the claim was barred by the six-year statute of limitations applicable to credit-card debt under § 12-548(A)(2). Santos maintained that the Bank’s cause of action to recover the entire debt accrued after the first missed payment in February 2008. Mertola countered that a missed payment gives the creditor the right to sue only for that payment. According to Mertola, the cause of action for the entire debt could not accrue until the creditor accelerated the debt. The superior court granted Santos’s motion, finding that “all of the breaches” alleged by Mertola “occurred more than six years prior” to it filing this action.
The Arizona Supreme Court reversed a very bad court of appeals decision.
The court of appeals reversed, agreeing with Mertola that Santos’s missed payments, by themselves, gave the creditor the right to sue only for those payments. Mertola, LLC v. Santos, 241 Ariz. 572, 574 ¶8, 575¶ 13 (App. 2017).   The Arizona Supreme Court reversed this very bad decision (yea for them).
What if borrower cures the missing payments?
Consistent with our decision in Gust, Rosenfeld, we hold that when a credit-card contract contains an optional acceleration clause, a cause of action to collect the entire outstanding debt accrues upon default: that is, when the debtor first fails to make a full, agreed-to minimum monthly payment. Accord Taylor v. First Resolution Inv. Corp., 72 N.E.3d 573, 588 (Ohio 2016). This rule will encourage creditors to promptly begin their collection efforts and protects debtors from stale claims. See Navy Fed., 187 Ariz. at 495 (acknowledging the incentive to begin collection efforts when a cause of action accrues at default). But, as we held in Browne, a debtor may cure a default if the creditor accepts a payment of arrearages that brings the account current consistent with the parties’ contract. 117 Ariz. at 75. By allowing the debtor to cure the default, the creditor relinquishes its pending cause of action to collect the debt, and the statute of limitations commences only upon a new default. Partial repayment, however, does not cure the default or reset the limitations period.
Click here to read full decision….

What may still be in question for the future is whether amortized loans with stated payment schedule, each missed payment carries with it a separate statute of limitations timeline as held in Navy Federal v Susan Jones, 187 Ariz. 493, 930 P.2d 1007 (Court of Appeals of Arizona, Division 2 12/26/96)  Decision: We hold that the six-year period commences on the due date of each matured but unpaid installment and, as to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause. 

The post Arizona Supreme Court Gets It Right – Collection on Credit Card Debt appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.


1 week 3 days ago

DRAMATIC INCREASE IN THE ELDERLY FILING FOR BANKRUPTCY PROTECTION

The number of elderly filing for bankruptcy is three times what it was in 1991.
elderlyAs a study, from the Consumer Bankruptcy Project, explains, elderly people whose finances are precarious have few places to turn. “When the costs of aging are off-loaded onto a population that simply does not have access to adequate resources, something has to give,” the study says, “and older Americans turn to what little is left of the social safety net — bankruptcy court.”
“You can manage O.K. until there is a little stumble,” said Deborah Thorne, an associate professor of sociology at the University of Idaho and an author of the study. “It doesn’t even take a big thing.”
Bankruptcy can offer a fresh start for people who need one, but for older Americans it “is too little too late,” the study says.
“By the time they file, their wealth has vanished and they simply do not have enough years to get back on their feet.”
According to an article in the New York Times – Not only are more older people seeking relief through bankruptcy, but they also represent a widening slice of all filers: 12.2 percent of filers are now 65 or older, up from 2.1 percent in 1991.
elderlyThose who need help, but have no place to look for help.
Even the smallest of unexpected expenses, such as a broken tooth or vehicle accident, can lead to a financial explosion.
Rising costs for housing and health care point to increased living expenses, along with other burdens, such as caring for younger generations or co-signed student loans for children and grandchildren.  Even the smallest of unexpected expenses, such as a broken tooth or vehicle accident, can lead to a financial explosion.  Not to mention the horrific damage a serious medical issue brings to the already financially strapped elder person.

By 2013, the average Medicare beneficiary’s out-of-pocket spending on health care consumed 41 percent of the average Social Security check, according to Kaiser Family Foundation, which also estimated that the figure would rise.

It is a challenge for anyone over 65 to find sources of additional income.
In order to cover basic living expenses many are forced into low paying jobs, such as a greeter at Walmart or clerk in convenience store.  In the long run the income from job barely cover the costs related to employment, such as increased transportation costs, additional health problems related to the physical burdens of working (such as standing too long or lifting heavy items).
At a time in their lives when our parents and grandparents deserve some peace of mind they are left with living in a financial nightmare.
There is no one answer to this nationwide problem, but it must be addressed now because the next generation facing retirement is carrying more debt than members of earlier generations, in an analysis by the Employee Benefit Research Institute.  This is a problem that is not going away any time soon.

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