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The Final Report of the American Bankruptcy Institute on Consumer Bankruptcy offers suggestions to make paying for bankruptcy more affordable. The report does a good job of explaining why fees are so high, but the suggested remedies are generally lame and at times just plain wrong.
In what way? Well, the report correctly diagnoses the problems of escalating legal fees faced by debtors filing Chapter 7 cases, but the proposed recommendations to solve this problem are just bizarre. The ABI commission makes the following recommendations:
- Online Data Input Forms.
- Increasing Provisions for Bro Bono Cases.
- Reducing Court Filing Fees.
- Video Attendance at 341 Hearings.
- Hire Government Attorneys to Prepare Case.
- Make Chapter 7 Attorney Fees Nondischargeable.
Online Data Input Forms.
The ABI suggests that if debtors could enter their own schedules online using easy-to-understand forms then attorneys could use this information to prepare cases less expensively.
First off, this already exists. There are multiple websites that provide forms a debtor can enter online and the cost is usually less than $100.
Second, most attorneys use software that allows debtors to input their creditors, property, income etc. Few attorneys utilize the service. Why? The truth is, debtors do a poor job of entering information. In fact, most do such a poor job that asking them to enter information is generally counterproductive.
This is not to belittle clients, but unless you work with bankruptcy schedules on a regular basis you will not understand what is being requested and why it is important. The ABI’s recommendation that new online data input forms be created is just a waste of time and money. The service already exists.
Increasing Provisions for Pro Bono Cases.
It is interesting that an organization comprised of law professors, attorneys and judges is actually suggesting that debtors would be better off by not having a competent attorney represent them. The ABI is suggesting that more funds be paid to Legal Aid clinics to help debtors file their own case.
First, it is unethical for Legal Aid attorneys to prepare pro se petitions and then abandon the client to file their own case. Bankruptcy Rule 9011 requires that attorneys who help prepare a bankruptcy petition must actually sign the petition. Multiple attorneys have been sanctioned by the court for attempting to contract away the duty to attend court and to provide “core and fundamental” services. Ghostwriting bankruptcy petitions is unethical under current court rules, but that is what Legal Aid clinics do.
Second, filing bankruptcy is a complex process even for attorneys, let alone a pro se debtor. The ABI is encouraging legal clinics to draft petitions and then abandon the debtor in court. I’ve seen pro se debtors lose homes, cars, and tax refunds because they were not properly represented. To encourage more of this is simply unwise. Filing bankruptcy is a dangerous process and debtors need competent (i.e., compensated) attorneys representing them.
Reducing Court Filing Fees.
Yes, reducing the $335 court fee to file Chapter 7 would help lower income debtors. But it would also deprive courts of their main source of revenue. Defunding our bankruptcy court system is probably not in the best interest of debtors. The ABI report does not state how this decrease in court funding would be addressed.
Video Attendance at 341 Hearings.
The move towards video court hearings is valid and that is actually starting to take place in rural communities. I’ve heard that this practice is already occurring in the Wyoming bankruptcy court and the US Trustee’s Office in Nebraska says they will start experimenting with it for rural cases. However, whether the hearing is live or on video, the debtor and their attorney must attend the meeting and I doubt this will result in much cost savings.
Hire Government Attorneys to Prepare Case.
The ABI commission suggests that an agency similar to a Public Defender office be established to help lower income debtors file cases. Gosh, isn’t that what Legal Aid clinics already do? I see nothing but disaster with this idea. First, this is never going to happen. Congress is not going to spend billions of taxpayer money to help people file bankruptcy. Second, does anyone actually think a government attorney is going to crank out a large number of petitions in any given week? Really, this idea is just plain dumb.
Make Chapter 7 Attorney Fees Nondischargeable.
This idea makes sense, but I doubt it will be approved by Congress anytime soon.
Once a bankruptcy petition is filed with the court, bankruptcy laws prohibit an attorney from accepting payment for work prepared prior to filing. So, Chapter 7 attorneys routinely demand that ALL fees be paid before the case is filed.
Excepting attorney fees from the bankruptcy discharge would encourage attorneys to accept monthly payments for their services after the case is filed, and that would greatly help lower-income debtors.
Interestingly, the bifurcation of legal fees into pre-filing and post-filing services is gaining momentum and this practice does allow attorneys to accept monthly payments after the case is filed. For lower income debtors who cannot come up with large retainer fees, a bifurcated legal fee arrangement may be their best option to make the process affordable.
The ABI Report gives negative reviews of the bifurcation process, but there is no substantial difference between bifurcating fees and making Chapter 7 legal fees nondischargeable. It is really the same thing. Bifurcation merely employs the legal trick of filing an incomplete petition that only provides a debtor’s name and list of creditors while the majority of the legal work is prepared immediately after the case is filed.
Bifurcation achieves the ABI’s goal of making legal fees nondischargeable and thus affordable. And since this procedure is already available, no laws need to be passed to make this a reality.
It would seem that the ABI Commission may have better spent its time creating guidelines to make the bifurcation process more available to lower income debtors. Bifurcation does not require more government programs or changes to the law. There is no shortage of competent bankruptcy attorneys, but there is a shortage of compensated attorneys in this field. That’s the real problem. Most bankruptcy attorneys I know are desperate for more business. This is strictly a compensation problem. Solve the attorney compensation problem and you solve the low income debtor problem.
Chapter 13 Benefits Overlooked.
The ABI Commission is apparently distressed about lower income debtors being lured into expensive chapter 13 cases. Yes, legal fees in chapter 13 cases are significantly higher than fees chapter 7 cases. However, the ABI Commission is overlooking significant advantages offered in the chapter 13 process.
First, debtors are represented by extremely competent attorneys in chapter 13 cases. (Again, compensated = competent.) That means attorneys are aggressive at stopping garnishments, foreclosures and judgment liens. Their fees are generally contingent on getting a chapter 13 plan approved, so attorneys are diligent in proposing feasible payment plans within a debtor’s ability to pay. A dismissed chapter 13 case results in the attorney not receiving compensation, so filing successful plans is the goal.
Second, chapter 13 plans have the power to cram down car loans to the value of a vehicle and to reduce interest rates as well. Those savings often pay for the additional cost of the chapter 13 case.
Third, new medical bills and other debts incurred after the chapter 13 case is filed may be added to the case if it is converted to chapter 7 later. Converting chapter 13 cases to chapter 7 is extremely common and the ability to add new debts provides a debtor with a longer-term benefit, especially for debtors who lack health insurance coverage.
Forth, chapter 13 fees are not that expensive. For a lower income debtor with no secured or priority debts, a 3-year chapter 13 case can be field for $310 of court fees down and a monthly payment of $100 per month. That seems damn reasonable to most folks.
Fifth, the ABI Commission reports that only 46% of chapter 13 cases are successful. Really? Then perhaps the ABI Commission should focus on that dismal success rate. In Nebraska the rate is closer to 60% and our firm has traditionally achieved a 70% discharge rate. Compared to Credit Counseling agencies that report a 25% to 40% success rate, that is actually pretty good. And why do some courts have such poor success rates? That’s the real question. Are the procedures streamlined? Does the court provide a framework of Local Rules that make the process simple? Do the Chapter 13 Trustee’s nitpick the cases and basically make the process miserable? Chapter 13 is an incredibility powerful tool to help lower income debtors when used properly and the fact that attorneys are compensated for providing that service is not a problem but is actually a mark of success. Imagine that, attorneys who work for lower income America actually can earn a decent income. That’s a problem? Gee wiz, clean your glasses ABI.
Image courtesy of Flickr and New Media Consortium.
Few conversations load in more emotion than those about finances. Wynn at Law, LLC, knows that the tensions and fears only escalate when the topic is bankruptcy. Knotted in the dialogue are important things like transportation, child support, student loans, and medical care.
A beater with a heater
In our section of Wisconsin, a car is less of a luxury and more of a necessity since only the larger metros have public transportation. Finding/Keeping a job is contingent (usually) on have reliable wheels.
Discharging some debt in bankruptcy might free up enough income so you can pay cash for something more substantial than a ‘beater with a heater.’ Most people will need a loan. Because there is a waiting period before you can file for bankruptcy again (see previous article) and you should have a better debt to income ratio to help raise your credit score, you can likely find a lender willing to lend you money for a car after a bankruptcy. Set your expectations accordingly: It’s probably going to be at a much higher interest rate.
Take care of the kids
Child Support is off the table in both Chapter 7 and Chapter 13. The obligation will not be discharged.
However, freeing up some income may make it easier to make on-time child support payments. This is critical since your on-time payments will avoid arrears and costly interest. The arrears and interest can build and lead into the same financial situation that contributed to bankruptcy to begin with.
Student loans are nearly untouchable
Just like child support, student loans are off the table in a bankruptcy filing. Well, usually that’s the case. To get a student loan all or partially discharged, you have to prove undue hardship.
The standard for undue hardship is tough. The American Bankruptcy Law Journal notes that less than 0.1 percent of student loan borrowers declaring bankruptcy try to get student loan debt discharged. Of that fraction, only 2 in 5 succeed. Just 4 in 10,000 people who filed for bankruptcy and sought to have their loans discharged received even a partial discharge.
Will my doctor dump me after I discharge his bill?
Unexpected medical bills are right up there with job loss when it comes to the reasons for filing bankruptcy. Yet at the same time, we spend years building a relationship with our primary healthcare providers. They might be annoyed by having most if not all their outstanding bills discharged.
There is an odd dichotomy here. On one hand, yes, they can drop you unless you’re seeing the provider for emergency care. (The Emergency Medical Treatment and Labor Act is federal law. It requires anyone coming to an ER to be stabilized and treated, regardless of their insurance status or how much money they have… or have discharged.) On the other hand, a doctor or nurse practitioner likely has no idea of your billing account and large healthcare facilities are very accustom to bankruptcy filings. They understand that any new services will be paid for and no changes are made when it comes to your care. For smaller offices, like a local dentist, he/she may actually understand your situation – and it’s not that uncommon – because you have built that relationship. Most of Wynn at Law LLC clients are able to continue seeing their regular providers without issue.
Image by Gaj Rudolf, used with permission.
The post From Cars to ERs, Bankruptcy Questions Answered appeared first on Wynn at Law, LLC.
Few conversations load in more emotion than those about finances. Wynn at Law, LLC, knows that the tensions and fears only escalate when the topic is bankruptcy. Knotted in the dialogue are important things like transportation, child support, student loans, and medical care.
A beater with a heater
In our section of Wisconsin, a car is less of a luxury and more of a necessity since only the larger metros have public transportation. Finding/Keeping a job is contingent (usually) on have reliable wheels.
Discharging some debt in bankruptcy might free up enough income so you can pay cash for something more substantial than a ‘beater with a heater.’ Most people will need a loan. Because there is a waiting period before you can file for bankruptcy again (see previous article) and you should have a better debt to income ratio to help raise your credit score, you can likely find a lender willing to lend you money for a car after a bankruptcy. Set your expectations accordingly: It’s probably going to be at a much higher interest rate.
Take care of the kids
Child Support is off the table in both Chapter 7 and Chapter 13. The obligation will not be discharged.
However, freeing up some income may make it easier to make on-time child support payments. This is critical since your on-time payments will avoid arrears and costly interest. The arrears and interest can build and lead into the same financial situation that contributed to bankruptcy to begin with.
Student loans are nearly untouchable
Just like child support, student loans are off the table in a bankruptcy filing. Well, usually that’s the case. To get a student loan all or partially discharged, you have to prove undue hardship.
The standard for undue hardship is tough. The American Bankruptcy Law Journal notes that less than 0.1 percent of student loan borrowers declaring bankruptcy try to get student loan debt discharged. Of that fraction, only 2 in 5 succeed. Just 4 in 10,000 people who filed for bankruptcy and sought to have their loans discharged received even a partial discharge.
Will my doctor dump me after I discharge his bill?
Unexpected medical bills are right up there with job loss when it comes to the reasons for filing bankruptcy. Yet at the same time, we spend years building a relationship with our primary healthcare providers. They might be annoyed by having most if not all their outstanding bills discharged.
There is an odd dichotomy here. On one hand, yes, they can drop you unless you’re seeing the provider for emergency care. (The Emergency Medical Treatment and Labor Act is federal law. It requires anyone coming to an ER to be stabilized and treated, regardless of their insurance status or how much money they have… or have discharged.) On the other hand, a doctor or nurse practitioner likely has no idea of your billing account and large healthcare facilities are very accustom to bankruptcy filings. They understand that any new services will be paid for and no changes are made when it comes to your care. For smaller offices, like a local dentist, he/she may actually understand your situation – and it’s not that uncommon – because you have built that relationship. Most of Wynn at Law LLC clients are able to continue seeing their regular providers without issue.
Image by Gaj Rudolf, used with permission.
The post From Cars to ERs, Bankruptcy Questions Answered appeared first on Wynn at Law, LLC.
By: Christy Bieber
From: The Motley Fool
https://www.fool.com/student-loans/paid-off-student-loans-early/
Two weeks after filing bankruptcy, Rod got his security clearance. Rod contacted me from a military base in the Midwest. The military wanted to give him a new assignment, in the DC area, with more responsibility. His wife and children had already rented a place and moved, while he was awaiting orders. At the last […]
The post Bankruptcy Solves Rod’s Security Clearance Problem by Robert Weed appeared first on Robert Weed - AE.
Two weeks after filing bankruptcy, Rod got his security clearance. Rod contacted me from a military base in the Midwest. The military wanted to give him a new assignment, in the DC area, with more responsibility. His wife and children had already rented a place and moved, while he was awaiting orders. At the […]
The post Bankruptcy Solves Rod’s Security Clearance Problem by Robert Weed appeared first on Robert Weed - .
Driving NYC taxis out of business: How Uber and Lyft doomed the once-solid yellow cab industryBy: Clayton GuseFrom: nydailynews.comhttps://www.nydailynews.com/new-york/ny-medallion-foreclosures-taxi-bailout-plan-uber-lyft-20200130-s2mjkhjubzgptdxasoxddwdote-story.html
Right After Bankruptcy, Carla Signed on a Car Loan and She’s Probably Gonna Lose Her House I tell people please please please, do not get a car loan until at least two years after your Chapter 7 bankruptcy. Two years after bankruptcy, I’m seeing people get car loans in the 6%-8% range. Three years […]
The post Right After Bankruptcy, Carla Signed on a Car Loan by Robert Weed appeared first on Robert Weed - AE.
Right After Bankruptcy, Carla Signed on a Car Loan and She’s Probably Gonna Lose Her House I tell people please please please, do not get a car loan until at least two years after your Chapter 7 bankruptcy. Two years after bankruptcy, I’m seeing people get car loans in the 6%-8% range. Three years […]
The post Right After Bankruptcy, Carla Signed on a Car Loan by Robert Weed appeared first on Robert Weed - .
Student Loan Debt “Relief” Companies Sued for Fraud and Violation of Federal Laws
CFPB FILED LAWSUIT AGAINST CHOU TEAM REALTY, LLC, MONSTER LOANS, DOCUPREP CENTER, DOCS DONE RIGHT, AND SEVERAL MORE ENTITIES. ALSO, BILAI ABDELFATTAH, BILL ABDEL, THOMAS CHOU, SEAN COWELL, ROBERT HOOSE, EDUARDO MARTINEZ, JAWAD NESHEIWAT, FRANK ANTHONY SEBREROS and DAVID SKLAR
As described in the complaint, the Bureau alleges that between 2015 and 2017, Monster Loans violated the Fair Credit Reporting Act (FCRA) by obtaining consumer-report information for millions of consumers with student loan debt from a major credit bureau on the pretense that the company planned to use the information to offer mortgage loans to consumers when, in fact, Monster Loans provided the reports to the student loan debt-relief companies to use in marketing their services. The Bureau also alleges that, between 2017 and at least early 2019, Lend Tech Loans similarly violated the FCRA by obtaining consumer report information for millions of consumers for use in marketing student loan debt-relief services.
The Bureau further alleges that, while offering and providing student loan debt-relief services, certain defendants violated the Consumer Financial Protection Act of 2010 (CFPA) and the Telemarketing Sales Rule (TSR) by making deceptive representations about the companies’ services. Specifically, the Bureau alleges that certain defendants misrepresented to consumers that they would have their interest rates reduced, have their credit scores improved, and that the U.S. Department of Education would become their servicer. The Bureau also alleges that certain defendants unlawfully charged and collected at least $15 million in fees before consumers received any adjustment to their student loans and made any payments toward their adjusted loans.
The Bureau filed its complaint in the U.S. District Court for the Central District of California on Jan. 9, 2020. The Bureau’s complaint seeks an injunction against the defendants, as well as damages, redress to consumers, disgorgement of ill-gotten gains, and the imposition of civil money penalties. The complaint also names several defendants in order to obtain relief and seeks disgorgement of those relief defendants’ ill-gotten gains.
Student Loan Debt “Relief” Companies Cannot Charge Upfront Fees
CHARGING ADVANCED FEES FOR DEBT-RELIEF SERVICES IS IN VIOLATION OF THE FEDERAL LAW
Under the TSR (“Telemarkarting Act, 15 U.S.C. Sections 6101-6108), it is an abusive act or practice for a seller or telemarketer to request or receive payment of any fee or consideration for any debt-relief services unless and until (A) the seller or telemarketer has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to a settlement agreement, debt-management plan, or other such valid contractual agreement executed by the customer; and (B) the customer has made at least one payment pursuant to that settlement agreement, debt management plan, or other valid contractual agreement between the customer and the creditor or debt collector. 16 C.F.R. § 310.4(a)(5)(i)(A)-(B).
In the course of providing, offering to provide, or arranging for others to provide debt-relief services, the Student Loan Debt Relief Companies, Docs Done Right, Nesheiwat, Sklar, Hoose, Sebreros, and Martinez charged and received fees before consumers’ applications for loan consolidations, loan repayment plans, and loan-forgiveness plans were approved, and before consumers had made the first payments under the altered terms of their student loans, in violation of the TSR. 16 C.F.R. § 310.4(a)(5)(i)(A)-(B).
MUSINGS FROM DIANE:
student loan repair scam
Anyone can be scammed – you, me, governments and the smartest person you ever known. Cons have no sympathy and consider stealing to be “their right”. In their world, no one can be trusted, not even a fellow thief. What a world they live in!! No, I am not trying to excuse their outrageous behavior. I am merely saying that they live without knowing the peace and love we have. What the thieves don’t understand or even care about, is the people they con have to live with those mistakes. They lose their home, their family, their sanity. Many end up on the street, staving and sick, fearing to ask anyone for help because they may be scammed again.
What can we do? If you see something, say something. Encourage everyone to question offers from others – even friends.
How Can I Help You?
The post Beware Student Loan Debt Relief Scams appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy & Foreclosure Attorney.
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