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Real estate investors and some bankruptcy trustees are looking for ways to make money off your upside down homestead. Many Chapter 7 debtors with upside down homesteads do not utilize their homestead exemption on their bankruptcy petition because there is...

When I mention to clients that they will be required to appear at a 341 First Meeting of Creditors, most of them cringe and become nervous immediately. They imagine a Meeting where they are interrogated and questioned about every aspect of their case.  In El Paso, the Creditors Meetings are nothing to be nervous about. I explain to my clients from inception that their 341 First Meeting of Creditors is in most cases quick and painless.  In a normal Chapter 7 case you will be asked the same series of questions as every other debtor. If anything else is going to come up we will almost always know ahead of time.  As your attorney it is our job to make this experience as simple as possible. I always make an effort to explain to clients that the questions asked are straightforward and simple. In Chapter 13 Creditor Meetings, the questioning may be more extensive but again they are straightforward questions and the Chapter 13 Trustee is not trying to trick you. All in all, your 341 First Meeting of Creditors should not be a torturous experience and your attorney should explain exactly what you should expect.
On a last note do not forget your SOCIAL SECURITY CARD and DRIVERS LICENSE!! Your meeting will not be held without it!!

Last week, I came across an article in the Washington Examiner while I was riding the metro to work. This article noted that residents of Maryland carry more student loan debt than any other state in the country at $33,087. Virginia ranked sixth at $30,855. The average is $29,088. Compared to the debt load I will be carrying due to law school, these numbers actually seem rather modest to me, but they still go to show that student loan debt is on the rise, especially in this geographic region. I try to put my thoughts of future student loan payments at ease by reminding myself that I am getting a degree in a (hopefully) lucrative field, but it is not only law students who are racking up substantial amounts of student debt. The debt, of course, can get crippling for young graduates. In connection with this, I have heard many espouse the false statement that student loans cannot be discharged in bankruptcy. The statement is false for its overbreadth; while student loans generally cannot be discharged in bankruptcy, the Bankruptcy Code does contain an exception in certain situations.
To explore this, I ask that you open up your copy of the Bankruptcy Code to section 523(a)(8). It reads:
“A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt — unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for — 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 an obligation to repay funds received as an educational benefit, scholarship, or stipend; or 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.”
So what does this mean? Probably the two most important words in that paragraph are “undue hardship.” It’s the key to this whole thing. The Bankruptcy Code does allow individuals to discharge their student loan debt; they just have to prove that they have an undue hardship.
What does undue hardship mean? First, I’ll tell you what it does not mean. I recall once hearing a former Bankruptcy Judge discuss an individual who attempted to have his student loans discharged in a case before him. This individual was a dentist. When said Judge asked him why a man with a good job and (presumably) good earnings would have an undue hardship in paying his student loans back, he responded that it was too difficult to balance paying off his student loans with the payments for his new expense sports car (I think it was a Porsche).
The judge did not consider this to be an undue hardship.
I should mention before I go further that I was inspired to write this blog in part because of an excellent podcast I recently listened at the American Bankruptcy Institute’s website (www.abiworld.org). I recommend that you check it out. Said podcast discussed the different tests that the Circuits use to determine what constitutes undue hardship. Since I suspect that most people reading this live within the Fourth Circuit (Virginia, Maryland, West Virginia, North Carolina, and South Carolina), I’ll discuss that rule first, which also happens to be the majority rule in the United States. The Fourth Circuit, like most other Circuits, has adopted the rule from the 1987 case of Brunner v. New York State Higher Education Services Corp., decided in 1987. Brunner contains a three-prong test to determine whether a debtor in bankruptcy meets the test for undue hardship:(1)   “that the debtor cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for herself and her dependents if forced to repay the loans;”(2)   “that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans;” and(3)   “that the debtor had made good faith efforts to repay the loans.”
Under Brunner, a debtor must satisfy all three of those qualifications in order to qualify for undue hardship. There are some additional factors that courts use in making these determinations; for example, did the debtor successfully graduate from her program, or does she simply have looming loans from four years’ worth of college and no degree? Can the debtor pay back at least a portion of the loans? What are the debtor’s career prospects and earning potential?
Not all courts have used this test, though. The Eighth Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) instead uses a totality of the circumstances test to determine whether a debtor would have an undue hardship in paying off educational loans, which is obviously a less strict test than the majority of courts use.
For whatever reason, a good portion of the population seems to believe that there is no way that student loans can be discharged in bankruptcy, but 523(a)(8) and cases modeled after Brunner clearly state the contrary. Interestingly, before the current Bankruptcy Code was passed in 1978, there was no bankruptcy statute which limited the ability to discharge student loans. Don’t be mistaken though: although it is indeed possible to discharge student loans in bankruptcy, it is by no means an easy thing to do. Debtors who plan on attempting to do so would be ill-advised to buy expensive automobiles beforehand – remember, Brunner talks about a minimalstandard of living.
Restrictive as it may be, I agree with the participants from ABI’s podcast – it is a good thing that some form of discharge from student loans exists under the Bankruptcy Code. A test such as the one used in the Eighth Circuit would no doubt be more useful to the debtor in bankruptcy, but in the current economy, some form of discharge for student loans is essential. By this, I am speaking in part about the new wave of for-profit universities which do just at their name indicates – try to make a profit, which is necessarily at the expense of the students. Unfortunately, these students all too often find themselves in tremendous debt, with degrees in areas which are not overly marketable in the first place, and even less so in an economy with an 8.1% unemployment rate.
Please let me know what you think. I hope I was thorough enough to give a clear understanding as to how the undue hardship exception works. Next week, I’ll be writing about the ability to discharge medical malpractice debts, based largely off the Supreme Court’s 1998 decision of Kawaauhau v. Green. I promise I will talk about things besides discharge after that. Thanks for reading.
J.P.

Richmond, VA-based Suntrust Mortgage will pay out $21 million to more than 20,000 African-American and Hispanic home loan borrowers to settle a federal government suit charging discriminatory mortgage pricing from 2005 to 2009. The lawsuit charged Suntrust with violating the Fair Housing Act and Equal Credit Opportunity Act.

This settlement comes on the heels of a settlement last December by Countrywide Financial Corp. and subsidiaries for $335 million for similar loans made between 2004 and 2008. Currently under investigation by the Department of Justice is Wells Fargo & Co.

"At the core (of the suit) is a simple story: If you are African-American or Latino, you likely paid more for a SunTrust loan than equally or similarly qualified white borrowers," Thomas E. Perez, assistant U.S. attorney general for the civil rights division, told the Richmond Times-Dispatch in a May 31, 2011conference call. "You paid what amounted to a racial surtax," ranging from hundreds to thousands of dollars per borrower," he told the newspaper.

The problem arose because of the way loan officers and mortgage brokers were incentivized, according to the lawsuit. The discriminatory charges (probably "yield spread premiums") boosted the commission for the loan agent when he or she could obtain an inflated price for a loan. Furthermore, the bank gave the loan officers and brokers free reign to do so by giving them broad discretion on prices beyond what should have been charged based on the customer's credit profile alone.

The investigation took two and half years and involved the review of more than 850,000 residential loans. Under the terms of the settlement, Suntrust will hire an independent administrator to contact the victims. Mailings are expected to begin at the end of this year. Suntrust admitted no wrong-doing.

The payout will average about $1,000 per person. However, in the opinion of this author, that will not nearly compensate the actual loss to many of the victims. Our law office has seen many who had homes with equity, refinanced during the height of the market, and then ended up losing both the equity and the home upon the collapse of the economy.

It's a sad state of affairs.