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On May 12, 2015 the US Securities and Exchange Commission announced that it had filed fraud charges against ITT Educational Services Inc., its chief executive officer Kevin Modany, and its chief financial officer Daniel Fitzpatrick.
According to the SEC, the national operator of for-profit colleges and the two executives fraudulently concealed from investors the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed. ITT formed both of these student loan programs, known as the “PEAKS” and “CUSO” programs, to provide off-balance sheet loans for ITT’s students following the collapse of the private student loan market. To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools.
According to the SEC, the loans were performing so poorly that ITT failed to disclose the fact that it expected to be on the hook for hundreds of millions of dollars on its guarantees. ITT and its management allegedly attempted to create the appearance that the company’s exposure to these programs was much more limited.
“Our complaint alleges that ITT’s senior-most executives made numerous material misstatements and omissions in its disclosures to cover up the subpar performance of student loans programs that ITT created and guaranteed,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “Modany and Fitzpatrick should have been responsible stewards for investors but instead, according to our complaint, they engineered a campaign of deception and half-truths that left ITT’s auditors and investors in the dark concerning the company’s mushrooming obligations.”
According to the press release issued by the SEC:

The SEC’s complaint alleges that ITT, Modany, and Fitzpatrick engaged in a fraudulent scheme and made a number of false and misleading statements to hide the magnitude of ITT’s guarantee obligations for the PEAKS and CUSO programs. For example, ITT regularly made payments on delinquent student borrower accounts to temporarily keep PEAKS loans from defaulting and triggering tens of millions of dollars of guarantee payments, without disclosing this practice. ITT also netted its anticipated guarantee payments against recoveries it projected for many years later, without disclosing this approach or its near-term cash impact. ITT further failed to consolidate the PEAKS program in ITT’s financial statements despite ITT’s control over the economic performance of the program. ITT and the executives also misled and withheld significant information from ITT’s auditor.

This isn’t the first time the for-profit education company has run afoul of the federal government. In 2014 the Consumer Financial Protection Bureau filed suit alleging that ITT pushed students into high-cost private student loans knowing they would likely end in default.

The post SEC Files Fraud Charges Against For-Profit College Operator ITT appeared first on Bankruptcy and Student Loan Lawyers - 866.787.8078.

Upon the filing of a bankruptcy petition, an automatic stay goes into effect which provides a debtor with immediate protection from collection efforts by creditors. But the automatic stay is not without limitations.
In a recent opinion, the U.S. Court of Appeals for the Sixth Circuit recently considered whether the automatic stay should apply to prevent a foreclosure sale in a case in which the debtor’s good faith, actions and credibility in filing for Chapter 13 were called into question.[1] The Sixth Circuit ruled against the debtor, affirming the bankruptcy court’s earlier findings that the debtor’s actions were “outrageous.” Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 13

Ten years after the passage of the “new” bankruptcy law we find a new class of Americans “the permanently insolvent”.    You won’t find reference to this group in any financial magazine.  But, hundreds of thousands of Americans are in a position of being hounded mercilessly by debt collectors, but unable to afford to file for bankruptcy.
Their poor credit docs not allow them to obtain credit to buy a home, vehicle or even get a credit card.  They tend to be part of the group that uses payday loans or title loans.   By falling into the trap of using these high interest loans (sometimes as much as 750%) they are forever trapped.
“The reform has generated a substitution, from formal bankruptcy to insolvency,” said Stefania Albanesi, lead author of “Insolvency After the 2005 Bankruptcy Reform,” a new study by economists at the Federal Reserve Bank of New York and Columbia University.
“Since insolvents are unable to repay debt, they are subject to collection actions and financial judgments and have difficulties obtaining unsecured credit,” she said. “This is particularly bad for low income individuals, as they have little savings and sometimes rely on debt to face unforeseen expenses and the like.”
The study, which was published in January and summarized this week in a Federal Reserve blog post, reached a variety of conclusions about the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. Few of the economists’ findings were encouraging for consumers.

• The bottom lines of credit card companies, banks and other financial institutions have been nourished by the act, which was proposed by Wall Street interests, passed by Congress, and signed by President George W. Bush on April 20, 2005. It went into effect Oct. 17, 2005. “We cite research … suggesting that profitability has risen for credit card companies as a result of BAPCPA,” Albanesi said.
• But consumers have suffered. Low income Americans, those most in the need of help, have been the most deeply damaged by changes that made it more difficult and far more expensive to file for protection under bankruptcy laws. “Our analysis suggests that the 2005 bankruptcy reform caused a decline in bankruptcy filings, which were replaced by a sizable rise in insolvency and foreclosure,” the study’s authors reported. “We show that insolvency is a state associated with a high degree of financial distress in comparison to bankruptcy. This consequence of BAPCPA is potentially welfare reducing for households.”
• Though it may not seem to matter if you are bankrupt or insolvent — after all, you’re broke either way — the differences are profound for consumers, especially those struggling to begin anew.

Read more: http://www.creditcards.com/credit-card-news/bankruptcy-law-insolvent-1276.php#ixzz3TpoGwB8a

 
The post Too Poor to File Bankruptcy – a New Class of Americans appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.

Joel Nunez had a problem – he owed $120,000 in private student loans for a flight school.
Even worse, he hadn’t finished his education. Left in dire financial straits, he went to a bankruptcy lawyer.
You’re probably thinking that Joel Nunez was a fool for thinking that he could wipe out his private student loans in bankruptcy. After all, we’ve been conditioned to think that wiping out student loans in bankruptcy is a Herculean feat that is accomplished only in the more dire of circumstances.
But Joel’s lawyer did a little digging and found the most useful of loopholes. And in doing so, he realized that Joel didn’t actually have a student loan.
Student Loans Not Automatically Wiped Out In Bankruptcy
Certain student loans aren’t automatically wiped out under the US Bankruptcy Code. But in order to qualify as a student loan, the debt must be for:
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.
Was It A Qualified Education Loan?
According to the court decision, Joel enrolled in Wings of the Cascades, a flight school operated by Spirit Flight, Inc., in 2004. He received two loans from Key Bank USA, National Association (“Key Bank”), a forprofit banking institution.
Key Bank thought it was lending money as a student loan. As a forprofit banking institution, the only way the debt wouldn’t be wiped out in a bankruptcy would be if it was considered a qualified education loan under the Internal Revenue Code.
Under the Internal Revenue Code, a “qualified education loan” is a debt incurred by the taxpayer solely to pay qualified higher education expenses—
(A)which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,
(B)which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
(C)which are attributable to education furnished during a period during which the recipient was an eligible student.
The Internal Revenue Code goes on to define qualified higher education expenses as the cost of attendance at an eligible educational institution.
Finally, the Internal Revenue Code defines an “eligible educational institution” as an institution which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this section, and which is eligible to participate in a program under title IV of such Act.
In other words, only the cost of attendance at an eligible educational institution are considered a qualified education loan that aren’t wiped out in bankruptcy.
The School Wasn’t An Eligible Educational Institution
The Federal School Code List contains the unique codes assigned by the Department of Education for schools participating in the Title IV federal student aid programs. Students can enter these codes on the Free Application for Federal Student Aid (FAFSA) to indicate which postsecondary schools they want to receive their financial application results.
The Federal School Code List is a searchable document in PDF and Excel format. The list will be updated on the first of February, May, August, and November of each calendar year.
You can find the list here.
Without sending you running off to check, Wings of the Cascades wasn’t on the list when Joel went there. Neither was Spirit Flight, Inc.
The school wasn’t an eligible educational institution.
And so Joel’s loan was wiped out in his bankruptcy case.
What Does That Mean For You?
If you owe money for private student loans, check the Federal School Code List for the years in which you went to the school.
If it’s not on the list, your private student loan may be discharged in bankruptcy.
It’s not magic – just the way the law works.
The court’s decision can be found here.

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