September 2011

Many potential bankruptcy clients tell me that they are concerned about the possible ill effects of bankruptcy on their future credit rating.  They are surprised and pleased to learn my tips for rebuilding credit after bankruptcy.  Let me begin with a bit of background.

I.          Your Current Credit Is Poor

When someone calls a bankruptcy

Sometimes a debtor faces a change of circumstances after having been in a Chapter 13 plan for a while.  If either your income decreases, or legitimate expenses increase, you may no longer be capable of continuing with the plan as originally confirmed.  What can be done?

I.          Motion To Temporarily Suspend Payments Or Modify The

If one of your creditors got a judgment against you in a State Court action, you can still discharge that debt in bankruptcy – if it is of the dischargeable variety.

When a debtor files for bankruptcy protection, the long term goal is, of course, freedom from debt.  Unfortunately, not all debts are dischargeable in

Our country has a huge ticking time bomb:  an ocean of student loan debt.  And as tuition and other educational costs continue to shoot up, students must take out ever larger student loans to finance their educations.  It is not uncommon for a doctor to finish medical school with $200,000 to $300,000 in student debt.  And undergraduates are receiving their bachelor’s degrees along with bills for $50,000 in student loans, without any hope of getting jobs that will pay enough to both service the debt and provide a better standard of living than the high school graduate enjoys.

I.          The Bankruptcy Code On Discharging Student Debt

As everyone knows, student debt can’t be discharged:  it says so right there in 11 U.S.C. § 523(a)(8).  Or can student loans be discharged in bankruptcy? 

While it is true that most student debt is not dischargeable, there is a special carve-out in the wording of § 523(a)(8) (with emphasis added):
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You might be surprised at the list of notables who have availed themselves of bankruptcy protection.  Of course, there are millions who go through bankruptcy every year.  But it is reassuring to know that some of the most important people in American history have gone through bankruptcy.

According to CNN  some of those folks include: 

I.          The Growth Of Government-Held Debt

The managing director of Economics1, a nonpartisan policy-research institute, reports:

In reviewing the latest Fed data, Investor’s Business Daily noticed that the total amount of government-financed consumer credit (the vast majority of which is mortgages) stood at $6.3 trillion, just slightly below the private sector’s total, $6.5 trillion.  As recently as 2006, the private sector far outpaced the government:  $8.5 trillion to $4.4 trillion.

Christopher Papagianis, House of Doubt, NATIONAL REVIEW, Aug. 15, 2011, at 21.

In addition, the various bailouts that have not been repaid mean that the government holds a great deal of non-consumer debt.  For example, Mark Modica of the New York Post observes:

Taxpayers still own about 26 percent of GM, and it looks increasingly unlikely that they’ll ever get their money back:  The share price would have to rise to more than $54, and it’s stuck in the low thirties.

Most important is the enormous debt the feds owe foreign countries who hold American debt – most notably, China.  Moreover, the recent battle over raising the debt ceiling led to the downgrading of American debt, and the subsequent current scramble to lower the federal deficit, suggests we may be nearing the point at which the feds will no longer be able to fund any more bailouts.

With the reliability of the banks in question, is it any wonder that the loan modification has failed to produce the hoped for results?

II.        The Bankruptcy Option

Bankruptcy is a federal law option that is administered by the federal government through the bankruptcy courts and the U.S. Trustee’s Office.  Therefore, the cost is already part of the funding of the judiciary and the Justice Department, so there is no need for large subsidies or bailouts.  Moreover, unlike the programs I discussed in the previous post, there is no doubt about the constitutionality of the bankruptcy system:  it is explicitly authorized in article I, section 8, of the U.S. Constitution.

How does bankruptcy help a homeowner deal with mortgage problems?
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