Friday, March 16, 2018

American Bankruptcy Institute Issues Student Loan Debt Recommendations

Many Americans in Oak Park, Illinois and throughout the Chicago area are struggling to repay student loans but do not see a path to discharge through consumer bankruptcy. For many of those debtors, the student loans they owe are private loans that are ineligible for the income-based repayment options available to borrowers of federal student loans. Even when debtors have a mix of federal and private student loans, the lack of income-based repayment options for private loans can make their repayment difficult if not impossible. While income-based repayment options exist for most federal loans, there remain many debtors who do not realize they may be eligible for lower payments through income-driven repayment plans.
Recognizing the financial devastation of student loans, the American Bankruptcy Institute (ABI) recently issued recommendations for reform when it comes to student loans and bankruptcy. We will give you some more information about the key takeaways from this set of recommendations.
Consumer Program for Access to Personal Bankruptcy and Legal Counsel
One of the first and most important recommendations from the ABI concerns the development of a program for student loan borrowers to give them better and clearer paths to consumer bankruptcy, as well as access to consumer protection lawyers who can provide counsel for managing student loans and seeking to have these debts discharged in bankruptcy. According to the ABI, many consumer bankruptcy attorneys have used “very creative litigation to obtain relief for student loan debtors,” but not all borrowers can afford to work with a lawyer. The ABI wants to change that.
Repaying Student Loans Through Chapter 13 Bankruptcy
Even if you cannot get a discharge of student loans through Chapter 7 bankruptcy, or if you do not qualify for Chapter 7 bankruptcy because you cannot pass the means test, it is important for student loan borrowers to have some kind of path toward discharge or forgiveness. The ABI emphasizes the utility of Chapter 13 bankruptcy repayment plans to give student loan borrowers some relief from unmanageable monthly student loan payments. With Chapter 13 bankruptcy, debtors enter into a repayment plan based on their income, and as such cannot be required to make unmanageable payments for outstanding student loan debt.
Once a debtor completes the terms of a Chapter 13 bankruptcy repayment plan, remaining debts typically are discharged.
Mediation Programs for Student Loan Debt
Not unlike mortgage mediation programs, the ABI recommends the creation of student loan debt mediation programs to help debtors. More specifically, the ABI committee recommendations indicated that a “local rule requiring mandatory mediation for student loan dischargeability actions” could be effective in helping debtors.
Changes to Student Loan Discharge in Bankruptcy
Finally, the ABI committee recommendations endorsed changes to the bankruptcy code so that student loan borrowers would no longer have to show an “undue hardship” in order to have loans discharged, but rather simply a “hardship.” In addition, the recommendations urged Congress to define what constitutes a “hardship” while also suggesting that a “totality of the circumstances” test could better serve debtors than any form of the current “undue hardship” test.
Speak with an Oak Park Bankruptcy Lawyer
Do you have questions about student loan debt and bankruptcy? An experienced Oak Park bankruptcy attorney can discuss your options for managing student loan debt and seeking a discharge through personal bankruptcy. Contact the Emerson Law Firm today.
See Related Blog Posts:

Thursday, March 8, 2018

Can I Afford Bankruptcy?

It might seem like a counterintuitive question, but if you are considering consumer bankruptcy, have you asked yourself whether you can actually afford to go bankrupt? We do not mean in a moral or ethical sense, but indeed in a financial sense. According to a recent article in the Chicago Tribune, this is a question that often arises right around the time of year when taxes must be filed. Why does tax season often coincide with a rise in personal bankruptcy filings in Oak Park and in other parts of Illinois? In short, “tens of thousands of people will soon get their tax refunds, and when they do, they will finally be able to afford the thing they’ve thought about for months, if not years: bankruptcy.”
To be clear, many Americans simply cannot afford to file for bankruptcy, and as such they wait until they receive a tax refund in March or April to file for Chapter 7 bankruptcy. Can you afford to go bankrupt?
Filing Fees for Consumer Bankruptcy
What are the costs associated with filing for bankruptcy? First, each type of bankruptcy has filing fees, which are as follows:
  • Chapter 7 bankruptcy: This common type of consumer bankruptcy is a liquidation bankruptcy that has a $335 initial filing fee, and if you later need to reopen the bankruptcy, it is an additional $260;
  • Chapter 13 bankruptcy: This is also a common form of consumer bankruptcy, but rather than asking the court to liquidate assets in order to discharge debts, the debtor develops a repayment plan, and the initial filing fee is $310 (and an additional $235 to reopen); and
  • Chapter 11 bankruptcy: While it is rare for consumers to file for Chapter 11 bankruptcy, this type of reorganization bankruptcy—similar to Chapter 13—may be the only option for consumers with so much debt that they cannot qualify for Chapter 13. This type of bankruptcy has a $1,717 initial filing fee, and an additional $1,167 to reopen a case.
There are additional fees if you decide to convert a Chapter 7 case to a Chapter 11 case ($922 fee), as well as to convert from Chapter 13 to Chapter 7, which is common in consumer bankruptcy matters and costs an additional $25. While a filing fee in the $300 range may not sound like a lot for a consumer bankruptcy case, it is important to take into account attorneys’ fees, as well. As the Chicago Tribune article points out, without the assistance of a lawyer, many consumers who file for bankruptcy make significant errors in their applications and end up without a discharge.
Costly Mistakes of Filing for Bankruptcy Without an Attorney
Consumers need to factor in the cost of a bankruptcy lawyer when considering the total cost of bankruptcy. As the article explains, “people who hire lawyers to help them file under Chapter 7 have their debts wiped away almost without fail, national filing data shows.” Indeed, “debtors with attorneys fare far better than those who go it alone.” As such, consumers should factor in the costs of hiring a lawyer, which often means that, without a tax refund check, it may be difficult if not impossible to file for bankruptcy in terms of financial affordability.
Consumer bankruptcy is extremely complicated, and it is important to have an advocate on your side with experience handling personal bankruptcy cases. An experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today.
See Related Blog Posts:

Friday, March 2, 2018

Do Consumers File for Chapter 20 Bankruptcy?

Are you familiar with Chapter 20 bankruptcy in Oak Park? If you have not heard of Chapter 20 bankruptcy, you are not alone. It is not actually a chapter of bankruptcy relief under the U.S. Bankruptcy Code, but instead refers to a combination of Chapter 7 and Chapter 13 bankruptcy. When you add Chapter 7 and Chapter 13 together, in effect you end up with a “Chapter 20” bankruptcy. When consumers opt for Chapter 20 bankruptcy, they do not file for both Chapter 7 and Chapter 13 at the same time. Instead, debtors typically will file for Chapter 7 and then, almost immediately after receiving a discharge, will file for Chapter 13 bankruptcy.
What are the benefits of Chapter 20 bankruptcy, and why would any individual consumers want to take this route?
High Consumer Debts and Significant Secured Debt You Want to Keep can Make Chapter 20 Bankruptcy a Good Option
Why would anyone file for Chapter 7 bankruptcy, receive a discharge, and then turn around and file for Chapter 13 bankruptcy? In most situations, the debtor has too much secured or unsecured debt to file for Chapter 13 bankruptcy. Currently, if you have unsecured debts of $394,725 or more, or secured debts of $1,184,200 or more, you are not eligible to file for Chapter 13 bankruptcy regardless of whether or not you can pass the means test.
Given that the costs to file for Chapter 11 bankruptcy are high for consumers and may not produce the best result, consumers who want to retain their homes or motor vehicles may find that Chapter 20 bankruptcy is the best course of action. In other words, when debtors want the power of Chapter 13 bankruptcy to prevent foreclosure and to save a home but their debt makes them ineligible for Chapter 13 bankruptcy, seeking “Chapter 20” bankruptcy could be a solution.
How Chapter 20 Bankruptcy Works for Illinois Consumers
If a debtor has too much unsecured debt to qualify for Chapter 13 bankruptcy but can pass the means test, then she can go through the Chapter 7 bankruptcy proceeding and receive a discharge of unsecured debt. Now, once the Chapter 7 discharge happens, the debtor no longer has too much debt to file for Chapter 13 bankruptcy. As such, once the discharge of unsecured debt happens, the debtor can immediately file for Chapter 13 bankruptcy in order to save his or her house by getting extra time to make payments, or to make payments on secured debts that were not eligible for discharge under the Chapter 7 proceeding.
Keep in mind that if you do file for Chapter 20 bankruptcy, you will not be able to receive a discharge on the Chapter 13 bankruptcy immediately after receiving the Chapter 7 bankruptcy discharge unless four years pass. The benefit of Chapter 20 bankruptcy is that you can discharge a large amount of unsecured debt to make yourself eligible to file for Chapter 13 bankruptcy, thereby giving yourself time to pay down debts and/or to prevent foreclosure on your home.
Contact an Oak Park Bankruptcy Lawyer
If you have questions about Chapter 20 bankruptcy, a consumer bankruptcy lawyer in Oak Park can help. Contact the Emerson Law Firm for more information.
See Related Blog Posts:

Friday, February 23, 2018

Personal Bankruptcy for Military Personnel

If you are currently serving in the military and have questions about filing for personal bankruptcy, it is important to speak with an Oak Park bankruptcy lawyer about your case. While active-duty members of the military can be eligible to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy as civilians, there are special issues that need to be taken into consideration. In some situations, active-duty military personnel, as well as disabled veterans, may be eligible for benefits associated with consumer protection. At the same time, filing for bankruptcy can impact a security clearance in some situations.
If you have questions, you should discuss them with a consumer bankruptcy attorney as soon as possible.
How Chapter 7 May be Different for Disabled Veterans
How do bankruptcy protections change for disabled veterans? Under the Bankruptcy Code, disabled veterans can be eligible for Chapter 7 bankruptcy in certain situations without passing the means test. In order to avoid the means test, a disabled veteran must be able to show that his or her debts were accrued primarily while on active duty or engaged in other military duties. This is significant given that the means test often makes it impossible for individuals who have a steady income to file for Chapter 7 bankruptcy protection (those debtors often must file under Chapter 13 instead).
In order to qualify, a disabled veteran needs to provide proof of a 30% or more disability, or proof that he or she was discharged from the military due to a disability suffered during active duty or that was aggravated during active duty.
How the Servicemembers Civil Relief Act can Help Members of the Military with Debt
What are some of the benefits for which active-duty servicemembers may be eligible? The Servicemembers Civil Relief Act (SCRA) is among the most significant federal protections for military members. What types of benefits does the SCRA provide? When an individual enters active duty, he or she can be eligible for protections surrounding “rental agreements, security deposits, prepaid rent, evictions, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosures, civil judicial proceedings, automobile leases, life insurance, health insurance, and income tax payments.”
As such, under the SCRA, if an active-duty servicemember is considering bankruptcy because he or she is facing foreclosure or has unmanageable interest rates on credit cards, the SCRA may be able to provide protection. At the same time, the SCRA also can result in a stay of a judicial proceeding against an active-duty servicemember who is seeking to collect unpaid debt. Given these protections, an active-duty servicemember may not need to file for bankruptcy protection—at least not immediately. A consumer protection lawyer can help you to understand what your options might be.
Bankruptcy and Security Clearances
What is one of the major reasons that an active-duty servicemember or veteran should reconsider bankruptcy? In some cases, as an article in explains, military security clearances can be impacted when an individual files for bankruptcy. However, this is not always the case, and you should speak with a lawyer about your specific situation.
Contact an Oak Park Consumer Bankruptcy Attorney
If you have questions about filing for bankruptcy while in the military, an Oak Park consumer bankruptcy lawyer can help. Contact the Emerson Law Firm to learn more about our services.
See Related Blog Posts:

Thursday, February 22, 2018

CFPB Budget Cuts Could Impact Debt Protection Abilities

The Consumer Financial Protection Bureau (CFPB) has only been in existence for seven years, but in that time it has taken many important steps to protect consumers from unfair debt collection practices and deceptive debt collection tactics. However, according to a recent report from NPR, “the Trump administration is proposing to dramatically cut funding” for the CFPB, which could ultimately prevent the Bureau from doing what it needs to do. The CFPB was created just after the financial crisis by Elizabeth Warren and others during the Obama administration. While the effects of the financial crisis largely have subsided, there is still a pressing need for the CFPB.
What would budget cuts do to the CFPB, and how could such cuts endanger consumers in need of protection?
Proposed $150 Million Cut to CFPB Funding
The proposed funding cut is not a small one. To be sure, the White House has proposed, in effect, gutting funding for the CFPB by cutting approximately $150 million from its budget. To put that figure in perspective, $150 million represents about 25% of the CFPB’s total budget. As such, a funding cut like this “would mean massive layoffs and disruptions,” according to Mike Calhoun, who is the president of the Center for Responsible Lending. In other words, the CFPB would no longer be able to do its job.
According to Calhoun, up to this point, the CFPB has been doing its job quite well. The Center for Responsible Lending and other organizations contend that “the agency has been paying for itself many times over.” Since its inception, the CFPB has provided more than $12 billion in consumer relief after consumers “were treated illegally by financial companies.” As such, “the CFPB is returning far more money to taxpayers than it’s costing them.” However, critics of the agency now are largely in charge of its present and future.
Funding Cuts Coupled with Regulatory Shifts
The proposed funding cuts to the CFPB look even worse when it comes to the future of consumer protection when those cuts are considered in relation to other regulatory shifts. As we have discussed previously, the CFPB recently put on hold a regulation that would have changed the ways that payday lenders can treat consumers. That regulatory change would have prevented payday lenders from charging predatory interest rates to consumers.
Is there any chance that CFPB funding will be preserved? The Federal Reserve provides the funding for the CFPB. There is a possibility that, if the Trump administration does in fact cut the budget significantly, that Congress could act to block that budget cut. Given that “polls show that the CFPB is popular with voters of both parties,” there is a possibility that “Republicans might join Democrats to protect the agency.”
Seek Advice from an Oak Park Consumer Protection Attorney
The CFPB is designed to protect consumers. However, an experienced Oak Park consumer protection lawyer can also help with your case. If you have questions about the Fair Debt Collection Practices Act (FDCPA) or other laws that may provide you with protection from predatory lending or deceptive debt collection practices, we can help. Contact the Emerson Law Firm today for more information.
See Related Blog Posts:

Friday, February 16, 2018

Student Loan Debtors with Severe Disabilities

According to an article in Forbes, there are more than 44 million student loan borrowers in the U.S. who collectively owe about $1.3 trillion in student loans. For some of these borrowers, Public Service Loan Forgiveness (PSLF) may allow them to have their federal student loan debt forgiven after 10 years without having to pay federal income taxes on the amount of debt that is ultimately forgiven. For most other borrowers, eligibility for forgiveness comes after either 20 or 25 years of qualifying payments, depending on the type of repayment plan the borrowers pay under. Yet those borrowers will be responsible for federal income tax on the amount of debt that is forgiven. For some student debtors, that amount is too much to bear. Indeed, some debtors have considered filing for consumer bankruptcy due to the tax debt owed on forgiven student loans.
A recent article from the Consumer Financial Protection Bureau (CFPB) reports that thousands of debtors with severe disabilities will not have to pay federal income taxes on forgiven student loans.
Death or Total Permanent Disability and Student Loan Debt
A recent change in federal law will affect “tens of thousands of disabled veterans and hundreds of thousands of people living with severe disabilities.” To be more precise, those individuals with student loan debt who are seeking to have their loans forgiven as of January 1, 2018 or afterward may be eligible to avoid paying federal income taxes on the forgiven debt. In order to be eligible, the borrower must either have suffered fatal injuries or be living with “total and permanent disability.” The change in the law applies to both private student loan debt and federal student loans.
Who may qualify? The article lists the following:
  • Veterans who are classified as “unemployable due to a service-connected disability” by the Department of Veterans Affairs (VA);
  • Borrowers who currently receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits; and/or
  • Borrowers who have been certified as “totally and permanently disabled” by a physician.
These are the guidelines from the U.S. Department of Education for federal student loans. Private student lenders also offer options for disabled debtors, and anyone with a total and permanent disability should contact the lender to learn more about options for discharge.
How Many Student Loan Borrowers May be Eligible?
In total, the Department Education estimates that about 387,000 student loan borrowers have disabilities, and together they owe more than $7.7 billion in federal student debt alone. Approximately 50% of those borrowers—or about 194,000 debtors—are currently in default on their loans. That number does not include severely disabled veterans who also may be eligible. The VA reports that “more than 800,000 severely disabled veterans are unemployable due to a service-connected disability.” Of course, not all of those veterans have student loans.
What does it mean to pay federal income taxes on forgiven debt? In short, forgiven student loan debt—except for PSLF and now for borrowers with total and permanent disabilities—is treated as taxable income. As such, if a borrower has $50,000 forgiven, she would owe federal income tax on that $50,000. As you can imagine, that amount of debt often is substantial—and perhaps impossible to pay—for a student loan borrower.
Contact an Oak Park Consumer Protection Lawyer
If you have questions about student loan debt and bankruptcy, you should get in touch with an Oak Park consumer protection attorney to discuss your situation. Contact the Emerson Law Firm to learn more about how we can help.
See Related Blog Posts: