High Court to hear Bankruptcy Student Loan Case

The U.S. Supreme Court has granted certiorari for a bankruptcy case involving student loan repayment. The debtor's Chapter 13 plan was confirmed by the trustee. The plan called for non-payment of the student loan interest during the plan. The debtor then completed the payment plan and received his discharged.

Eleven years later the student loan company comes out of the woodwork claiming the plan was void and illegal and they're now due the interest from the debtor.

If the law allowed no finality in cases and one side could appeal long after the fact, our legal system would derail. The Supreme Court will decide this one and we'll be posting updates.

College Football Star Files Bankruptcy, Surrenders Championship Rings

The Omaha World-Herald reports former Nebraska star lineman Aaron Taylor is hoping he can retain his memorabilia he surrendered to the trustee upon filing Chapter 7 bankruptcy. Included in the memorabilia was Taylor's three national championship rings, four district championship rings, and the Outland Trophy.

Taylor and other former Nebraska stars opened a restaurant in 2006. The debt became too much leading to the bankruptcy filing. The petition listed assets of $5,300 and debts of about $110,000.

The value of sports memorabilia can be difficult for the bankruptcy trustee to determine. In this case, an auction is scheduled to take place Oct. 31 in Scottsbluff, NE. The proceeds of the auction will go to pay Taylor's creditors. Taylor is hoping that donations from fans and help from his parents will allow him to be the winning bidder to get his rings and memorabilia back.

Nebraska bankruptcy laws only allow an exemption of $2,500 for "any personal property".

Student Loans and Bankruptcy - Something May Be Cooking

Rep. Steve Cohen (D-Tenn.), chair of the House Judiciary Subcommittee on Commercial and Administrative Law, held a hearing to initiate legislation that would alter the 2005 bankruptcy law changes.

The current bankruptcy law prevents virtually all debtors from discharging their student loan debt. At the same time, most other forms of debt, including mortgages, credit card debt, medical bills, and auto loans, can be discharged and wiped away through bankruptcy. The only exceptions are made in cases of "undue hardship", a very vague and difficult standard to meet.

In a nutshell, the law interpreting "undue hardship" was not defined by congress, varies from district to district and is up to the interpretation of bankruptcy judges. Courts generally go through long investigations to determine whether debtors have faced an undue hardship. An example of a likely undue hardship would be a paraplegic who has the inability to work or provide any income for the rest of his life. In other words, it's a very difficult standard to meet.

The current law not barring student loan discharge except in cases of undue hardship applies to both federal and private student loans. Federal student loans come with fixed interest rates, flexible payment plans, and other consumer protections that generally make them less risky for borrowers. On the other hand, private student loans aren't subject to the same rules and and may have high variable interest rates and payments. Taking out a private student loan is no different than putting the tuition and books on a credit card. The only difference is a credit card can be discharged in bankruptcy.

In 2008, an amendment to the bankruptcy code was proposed that would have allowed debtors to discharge their their private student loans in bankruptcy, as long as the loan had required repayment for at least five years. The measure failed in a 236 to 179 vote. Cohen’s bill may be modeled after the failed amendment.

This would be a huge change to the current bankruptcy laws. We'll be monitoring any bill introduced.

Arizona Bankruptcy filings increase yet again.

Bankruptcy filings across the valley and Arizona spiked against last month as more consumers feel the economic heat.

Valley filings for Chapter 7 bankruptcy increased 93.2 percent last month compared with July 2008. Filings increased from 997 to 1,926 for the month, according to the U.S. Bankruptcy Court of Arizona. Across Arizona, Chapter 7 filings increased 86 percent, from1,415 to 2,632.

The economic indicators including unemployment rates indicate filings are expected to remain high. Also, many homeowners in Arizona are miles upside down in their house. People are choosing to walk away from their properties instead of paying on a mortgage where the payoff is over twice as much as the value of the property. It makes sense to draw a line in the sand and file bankruptcy. This allows people to rebuild the credit sooner instead of chipping away at astronomical debt for years.

Bankruptcy Filings are on pace to beat 2005 law change filings.

The American Bankruptcy Institute has released data showing bankruptcy filings are nearing record levels.

In 2005, Congress and President Bush overhauled the bankruptcy laws in to favor creditors and make it tougher for consumer to file. Bankruptcy filings topped off at around 2 million consumer filings that year. The bankruptcy law change created a large spike in filings prior to the law taking effect. After the law passed, filings sharply dropped for the next several quarters. Annual bankruptcy filings haven't surpassed 1 million again until last year.

Unemployment continues to rise and we all wonder when things will taper off. The housing market, especially in hard-hit areas such as Phoenix and Las Vegas, continue to fall. The rising level of bankruptcy filings show that people are less hesitant to use the bankruptcy laws to their advantage. Consumers are using the poor economic outlook as an opportunity to get a fresh start before the economy and housing market recovers.

The Dault Law team continues to help individuals and small businesses in Phoenix get back on the path to financial freedom using the bankruptcy code.

Obama's new proposal for a Consumer Protection Agency

President Obama's planned Consumer Financial Protection Agency (CFPA)

Here's some potential good news for consumers! Americans may be getting some breathing room from exuberant credit card rates and predatory lending practices.

President Obama's plan is reportedly based on legislation introduced by Senator Dick Durbin (D, Ill) and backed by Senators Chuck Schumer (D, NY) and Ted Kennedy (D, Mass).

It's also been emphasized that this new consumer protection agency will have significant power unlike past consumer protection agencies.

The scope of the CFPA would likely include the following:

• Enforcing protection from deceptive practices. The agency would ensure that consumers could access concise and clear information about the financial products offered to them and that agencies are prohibited from using deceitful marketing tactics.
  
• Enforcing more full disclosure regarding financial products. Creditors will likely be required to be upfront with the reasons for fees, costs, penalties, and sudden interest-rate hikes.
• Discouraging risky financial products. The agency would add hurdles to the process of signing agreements for risky products like subprime mortgages and complex credit cards for consumers who may be better served with standard and less risky lending arrangements.
  
• Removing the risk factors for another mortgage crisis. This could involve implementing significant structural changes to the mortgage lending industry to prevent another housing market meltdown.
  
• Overseeing the Community Reinvestment Act (CRA). The agency would also be involved with overseeing the progress of the CRA. The CRA encourages financial institutions to lend to financially disadvantaged communities.