1.    the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans;

2.    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.    the debtor has made good faith efforts to repay the loans.

I have succeeded in having student loans discharged in two of my bankruptcy cases. In one, the debtor was a 72-year-old man who was in the beginning stages of Alzheimer’s disease. In the other, the debtor was a 57-year-old grandmother who was raising three of her grandchildren, while also caring for her terminally ill mother.  In both cases, the debtors had made payments on their student loans in the past, had very limited income, and their circumstances were unlikely to improve in the foreseeable future.

I have been contacted in the past by people in their 20s or 30s who were interested in discharging their student loans in bankruptcy, but I have never pursued those cases. The courts will not grant a discharge of a student loan if the person has many productive years ahead of them in which to repay the loan.

The Department of Education will sometimes forgive a student loan if a person has attended a school that provided a worthless degree, the school has gone out of business, or some other situation exists that indicates fraud by the school. If you feel that your situation falls into this category, contact the U.S. Department of Education to pursue a possible forgiveness of your loan or to get a forbearance or other help in repaying your loan.

You have three options concerning your vehicle when you file a Chapter 7 case:

1. Reaffirmation. If you reaffirm the debt on your vehicle, it means that you agree to continue making payments and that if you stop doing so, the creditor can repossess the vehicle. If you reaffirm a loan on a vehicle and it is repossessed after your bankruptcy discharge, you will be held responsible for any balance remaining after the car is sold at auction. You should not reaffirm the debt unless you are sure you will be able to make future payments. I also advise my clients not to sign reaffirmation agreements unless the creditor offers them better terms under the reaffirmation agreement (which is essentially a new contract on the vehicle), such as lowering the interest rate and/or reducing the balance owed. In the vast majority of cases, creditors will not repossess a vehicle even if you fail to sign a reaffirmation agreement, so long as you continue to make your required monthly payments.
2. Redemption. You may also consider redeeming your vehicle, if you have the resources to do so. Under a redemption, you pay the creditor the present value of the vehicle all at once, and are not responsible for the unsecured portion of the debt, which is the amount over the value of the vehicle. For example, if your vehicle is worth $5,000 and you owe $10,000 on it, you can pay the creditor $5,000 and the remaining balance is discharged in your bankruptcy.
3. Surrender. If you simply cannot afford your vehicle, the best option may be to surrender it. If you surrender the vehicle, the creditor must accept the vehicle as full satisfaction of the debt, and may not pursue you to collect any balance remaining on the debt after the vehicle is auctioned.

Often, it makes more sense to purchase an inexpensive vehicle for cash and surrender your vehicle if you can no longer afford it. You can then trade in that vehicle after your bankruptcy is completed, and purchase a vehicle on credit. While you will probably have to pay a high interest rate on a vehicle after your bankruptcy is over, it may be more affordable than the vehicle you have surrendered. Additionally, making on-time payments on a vehicle, whether a new one or one reaffirmed in your bankruptcy, will improve your credit score relatively quickly.

For advice about how to handle your vehicle in a bankruptcy case, you should consult with a reputable bankruptcy attorney who can explain your options and help you decide the best course for you.

All of the debtor’s creditors also receive notice of the meeting, and may attend and question the debtor. In reality, that seldom happens. Bankruptcy cases are filed electronically with the bankruptcy court, and creditors can view all the documents filed in the case online. There normally is no reason for a creditor to spend the time and money to attend the meeting in person.

The trustee assigned to the debtor’s case presides at the meeting, swears in the debtor, and tape records the meeting. The debtor, his or her attorney, and the trustee sit at a conference table in a meeting room, and if a creditor attends, the creditor will also sit at the table during the meeting. Other debtors, attorneys, and creditors are also in the room and can hear what is being said. However, the other parties are usually far more concerned about their own cases and pay little attention to what is being said in other cases.

After the debtor is sworn in and the trustee determines that the debtor has presented the proper identification — usually a driver’s license and Social Security card — the debtor’s attorney asks the debtor a series of questions. Those questions are related to the information that was given in the schedules and statement of financial affairs filed in the case, and usually just confirm for the record that the information given was true and correct. If any explanations or corrections to the information need to be made, those issues are discussed during the meeting.

If the trustee wants additional information or documents, those items are requested and a deadline is normally given for production of that information or those documents. If any creditors are in attendance, they are allowed to ask questions relevant to their claims in the case. However, most trustees limit the time allowed for creditors to question debtors at the meeting, and do not allow the questions to become abusive or irrelevant. If creditors wish to ask further questions, they are allowed to file a motion with the court requesting a “2004 exam,” which is similar to a deposition. However, it is extremely rare for such an exam to be requested.

It is very important that a debtor review all of the paperwork filed in his or her case before the time of the trustee meeting, to be sure that no mistakes were made, that no information is incomplete, or that no additions or changes need to be made. Once the debtor is sitting before the trustee, all of the paperwork should be complete and accurate, to avoid any appearance of fraud or dishonesty. Be sure your lawyer is completely aware of anything relevant to your case that could possibly cause a problem at the meeting. Your lawyer can make any necessary amendments to the documents before the meeting so that your case will proceed smoothly and you will receive your discharge in a timely manner.

The prospective debtor must take the credit counseling class within the six months before the case is filed. The client’s bankruptcy attorney will provide the information needed to complete the course, which costs between $30 to $50 per person. If a couple is filing a case together, there is generally a significant discount.

For example, the credit counseling course that I recommend (The Mesquite Group) offers the course for $30 for an individual and $40 for a couple. The course is available either by phone or over the internet, and takes about an hour. The company then emails the certificate of course completion to me, and I am able to upload the certificate to the court when I file the client’s case. The certificate must be filed with the petition that commences the case, or the case will be dismissed.

Several of my clients have told me that they learned some valuable things from the course, and no one has complained of it being a complete waste of time. However, I have never had a client decide not to file a bankruptcy case after taking the class. Contrary to what many believe, the vast majority of people who file a bankruptcy case have already tried everything in their power to solve their financial problems before deciding to file a bankruptcy case.

For many people, a bankruptcy notation may not make much of a difference at first, since they may be behind on credit cards, have a foreclosure or repossession on their credit report, or have a high debt-to-income ratio. The bankruptcy discharge generally wipes out the delinquent debt, which improves the debtor’s debt-to-income ratio. Some people even find that their credit score is higher after bankruptcy than it was before.

There are steps you can take to help your credit score improve more quickly after a bankruptcy:

1. Pay Your Secured Debts On Time. The most important step you can take to improve your credit score is to make on-time payments on your mortgage, cars, and any other secured debt you have, such as furniture payments. Prompt payment of secured debt has a positive impact that grows over time.
2. Get One Credit Card. At first, the credit card offers you receive after a bankruptcy will have very unattractive rates and rules. Often, you may be offered a credit card with a low limit, usually around $250, but the card may arrive with most of that limit already eaten up by an array of fees. Shop around, and find a card without such unfavorable terms, and consider a “secured” credit card, which ties a savings account to the card so the issuer can easily pay itself from the account. Sites such as Bankrate.com can help you search for a card that meets your needs. Charge a small amount on the card each month, and pay it off completely.
3. Buy a Used Car From a Reputable Dealer. Many “tote-the-note” car lots do not report your payments to the credit reporting agencies, so your on-time payments have no effect on your credit score. However, reputable car dealers often have a wide selection of used cars, and if you have a reasonable down payment, you can negotiate an affordable interest rate.
4. Consider a Mortgage. If you do not already own a home, you may find it difficult to get a mortgage within the first two years after a bankruptcy. However, with the high number of foreclosed properties, many banks are being more flexible about bankruptcies. Loans guaranteed by the FHA may be available more readily than other home loans.

The most difficult thing for many former bankruptcy filers to resist is the onslaught of credit offers they will receive right after their case is concluded. Many creditors will take a chance on a bankruptcy filer, because they know that those people cannot apply for bankruptcy protection again for up to eight years. Thoroughly investigate any credit offers before accepting them, and avoid the temptation to take on too much debt at one time. By working logically and steadily to improve your credit, you can recover from your bankruptcy quickly and maintain the fresh start that your case afforded you.

As long as the case is filed before the foreclosure sale takes place, the sale will be halted, and cannot be rescheduled without the permission of the bankruptcy court judge. The debtor will be given the opportunity to propose a Chapter 13 Plan to repay the delinquent mortgage payments and other debts over a three- to five-year period. If the plan is approved, the debtor will make monthly payments to the bankruptcy trustee, who will then distribute the payments among the debtor’s creditors. The homeowner must resume normal monthly payments on the mortgage after the bankruptcy is filed, in addition to making the trustee payments.

Among the other types of debts that can be paid through the Chapter 13 Plan are vehicle payments, furniture payments, taxes, and child support. The debtor’s unsecured debts (credit cards, medical bills, personal loans) may be paid nothing or may be paid some percentage of what is owed, depending upon the debtor’s income level and reasonable expenses.

If you have received a foreclosure notice and wish to save your home, it is important that you consult an attorney immediately. There are necessary steps that must be taken before a bankruptcy case can be filed, such as attendance at a credit counseling session, either online, by phone, or in person. There is also a great deal of paperwork that must be prepared before the case can be filed, and your attorney will be able to do a better job and get your case filed properly if there is sufficient time to do so before the date of the sale.

In order to succeed, a creditor must show good cause for the request to lift the stay. The most common scenario in which this arises in a bankruptcy case is when a debtor does not make mortgage payments after the case is filed. A debtor is required to make mortgage payments on time after the bankruptcy case is filed, and if the debtor does not do so, the mortgage holder is entitled to file a motion to lift stay. At the hearing on the motion, the mortgage holder must prove that there is good cause for lifting the stay, and normally the fact that a debtor is not making mortgage payments will constitute good cause.

Often, however, the debtor and mortgage holder come to an agreement to make extra payments, normally over a six-month period, to bring the mortgage up to date. In addition, the debtor must also make the normal monthly payments that come due during that time. However, if those extra payments are not made and/or the normal monthly payments are not made, the stay may lift automatically so that the mortgage holder can proceed to foreclose on the property.

Another situation in which a creditor may file a motion to lift stay is when the debtor fails to keep collateral properly insured. This usually involves insurance on a vehicle. If the debtor obtains insurance before the time of hearing, the stay will normally remain in place and the debtor will be able to keep the vehicle.

The ability by the creditor to file a motion to lift stay when a debtor fails to fulfill his or her duties ensures that the bankruptcy process is fair to all parties to the case, and that the debtor cannot infringe upon the rights of the creditor to be properly compensated and protected.

According to the American Bankruptcy Institute, consumer bankruptcy filings reached 126,434 in July 2009, the highest monthly total since the rush of filings that occurred before the Bankruptcy Abuse Prevention and Consumer Protection Act was implemented in October 2005. The data came from the National Bankruptcy Research Center (NBKRC). The July 2009 consumer filing total represented a 34.3% increase nationwide from the same period a year ago, and an 8.7% increase over the June 2009 consumer filing total of 116,365. Chapter 13 filings constituted 28.3% of all consumer cases in July, slightly above the June rate.

“Today’s bankruptcy filing number reflects the sustained and growing financial stress on U.S. households,” said ABI Executive Director Samuel J. Gerdano. “Rising unemployment on top of high pre-existing debt burdens is a formula for higher bankruptcies through the end of this year.”

Click here to review the monthly bankruptcy filing charts.

For example, the filing of the bankruptcy case prohibits the foreclosure sale of a home, repossession of a vehicle, levy of a bank account, or even a phone call to the debtor attempting to collect a debt. If a creditor ignores the stay and continues with collection action, the debtor may file a motion in bankruptcy court for violation of the automatic stay. The creditor may be found liable for monetary damages and attorney’s fees to the debtor, and other penalties may be imposed by the bankruptcy judge for the violation.

The automatic stay is one of the most powerful remedies available in any court, and obtaining the stay is often the reason for filing the bankruptcy case. If a debtor is facing foreclosure, repossession of a vehicle, has been served with a lawsuit, or is being harassed by creditors, the immediate effect of the automatic stay protects the debtor so that he or she will have an opportunity to restructure or eliminate their debt without losing property.

Some of the exceptions to the automatic stay include family law matters, such as paternity suits, custody and visitation actions, child support proceedings, divorce, or actions regarding domestic violence. Criminal proceedings are also unaffected by the automatic stay.

If you are a creditor, it is very important that you consult a lawyer before taking any action to collect a debt once you are aware that a bankruptcy case has been filed. If you are a debtor considering the filing of a bankruptcy case, you should obtain the advice of an experienced bankruptcy attorney who can advise you how the automatic stay may help you deal with your creditors and protect your property.

Many people falsely believe that FHA loans are available only for first-time buyers or those with perfect credit. Both of those misconceptions are untrue. FHA loans are not limited to first-time buyers and even those with damaged credit can qualify for such a loan.

One of the factors that makes FHA loans so popular is the low down payment required – only a payment of 3.5% from the borrower’s own funds is required. The funds can come from savings, a checking account, or retirement funds, or from gifts to the borrower by a relative or other party. Customers with credit scores between 620 and 740 may be able to obtain a better rate, lower fees, and lower mortgage insurance costs with an FHA loan as compared to conventional loans.

While FHA does require a borrower to show an overall history of repaying obligations in a timely manner, it does allow for less than perfect credit in some cases. Even if a borrower has a bankruptcy in their past, they may be able to obtain an FHA loan. If two years have passed since the borrower had a Chapter 7 case and there have been no late payments on the borrower’s credit report since that time, an FHA loan may be obtainable. If a Chapter 13 case has been completed and discharged, an FHA loan can be obtained immediately if the preceding 12 bankruptcy payments were made on time. It is even possible for a borrower to obtain an FHA loan during a Chapter 13 bankruptcy, if trustee payments have been made on time and the trustee and the court approve the incurrence of the new debt.

FHA loans are also assumable, which will make a home more sellable later. Another advantage is the streamlined refinancing procedure should a buyer later wish to convert the loan into a more favorable one later.

More information concerning FHA loans is available from the website of the Federal Housing Administration.

Recently, I was watching the “Today” show and heard that an upcoming segment would address bankruptcy. I looked forward to hearing what Carmen Wong-Ulrich, a financial reporter for CNBC, had to say. I was deeply disappointed to hear her say that in a Chapter 7 case, “you lose all of your assets.” That is completely incorrect, yet millions of Americans now believe what this “expert” said on national television.

However, there is some good, accurate information available, and I recently found an excellent article on the U.S. News and World Report website. The author, Kimberly Palmer, interviewed several bankruptcy attorneys, and in particular quoted Carey Ebert, president of the National Association of Consumer Bankruptcy Attorneys, who is a bankruptcy attorney and Chapter 7 trustee in Hurst, Texas. Those attorneys offered the following tips:

1.  Take a close look at your budget. Consumers are required to take a credit counseling class before filing a bankruptcy case, in order to give them a chance to consider other ways to resolve their debt. A bankruptcy attorney can give you the names of credit counseling organizations that are approved by the bankruptcy courts in case you decide to file a bankruptcy case afterward. If you take such a course from an unapproved agency, you will have to take the course again from an approved company before filing bankruptcy.

2.  Prioritize your payments. Pay for your important assets first, such as your house and cars. Credit card payments should come last, after your home, vehicles, food, utilities, and other necessities. If you are unable to buy groceries, gasoline, clothing, and other necessities, but are still making your credit card payments, you should seriously consider speaking to a bankruptcy attorney.

3.  Exhaust your other options. Some people are able to negotiate alternate payment plans with their creditors or obtain loan modifications. However, most people who enter into even reputable debt payment plans are not able to complete the programs, and end up back where they started, sometimes after paying thousands of dollars. Often, a bankruptcy case will cost much less than the amount of money spent on a failed attempt to complete such a program.

4.  Consider your credit score. Most people who are considering bankruptcy already have troubled credit reports, and wiping the slate clean enables many people to recover and begin improving their credit after the bankruptcy case is concluded. A bankruptcy case does stay on your credit report for 10 years, but has less effect as time goes by. If a debtor continues to make on-time mortgage and car payments during and after the bankruptcy, their credit score will improve quickly.

5.  If it’s the right decision, don’t wait. Once you consider your other options and decide bankruptcy may be the best decision for you, there is no reason to wait. Continuing to make payments to creditors is usually a waste of money if you have decided to file a bankruptcy case.

6.  Get professional help. Bankruptcy attorneys usually offer free initial consultations and arrange for payment plans. And bankruptcy attorneys know how to protect your assets and avoid unnecessary loss of your property. Often, people do such things as use up their retirement funds or transfer property in the mistaken belief that they would otherwise lose those assets in bankruptcy. It is much better to learn the facts before making any bad decisions.

7.  Stay away from scams. Ads in newspapers, on the radio and TV, and on the internet that promise to cut your debt without bankruptcy are often scams. Normally, the companies charge up-front fees, and then require large monthly payments to build up a fund to use for settlement with creditors. During that time, creditors continue to add interest and late fees, and the balances on the accounts grow to a point where settlement is impossible. By the time the debtor realizes that, the settlement companies have already received their fees, while the debtor is left with the same or higher debts than before.

8.  Keep your car and house after filing. In most cases, debtors are able to keep their homes and cars after filing bankruptcy, along with most or all of their other assets. Often, adjustments can be made to interest rates on vehicles, and in a Chapter 13 case, affordable monthly payments can be made to catch up on past-due mortgage and vehicle payments.

9.  “Hang in there”. Bankruptcy is not a simple process, but with the assistance of a good lawyer, most people find they are much happier after filing bankruptcy than they were before. Protection from creditor harassment and the opportunity to get a fresh start enable you to provide a solid financial foundation for your family.

Carolyn Chesnutt, a bankruptcy lawyer with Addison-based Charles R. Chesnutt, P.C., stated, “Often the most responsible, loving, hardworking, bill-paying people file for bankruptcy because of medical debt.”

Todd Mark of Frisco, who is vice-president of education at the Consumer Credit Counseling Service of Greater Dallas, found himself in the same situation as many of his clients. In February 2006, his two-year-old son, Josh, needed kidney and bladder surgery at Children’s Medical Center in Dallas. Mark was left with a $19,000 bill, even after the insurer paid 80% of the medical costs. Mark was fortunate to have enough money to pay the bill, but recognizes that many others do not.

Mark’s average client in 2008 had a gross income of $39,000 and unsecured debt of $28,000. According to Mark, most of that debt was related to divorce, layoffs, medical bills, or a combination of the three. “If you don’t have emergency savings, you’re one step away from financial crisis, whether your one step is a twisted ankle or a car wreck,” Mark said.

Hurst bankruptcy attorney David Ebert of the Ebert Law Offices PC confirmed that his clients follow the same pattern. “For those without cash or other liquid assets, the alternative is credit cards,” Ebert said. Ebert said that he processed 300 bankruptcies last year, and 60% involved high medical bills.

The study, which is published in the August 2009 issue of the American Journal of Medicine, indicates that the proportion of all bankruptcies attributable to medical problems rose from 49.6% in 2001 to the 62.1% figure in 2007. Surprisingly, 77.9% were insured at the beginning of the illness that resulted in bankruptcy, and most were solidly middle class before falling ill. Two-thirds were homeowners and three-fifths had gone to college. Often, medical bills coincided with a drop in income due to lost work time from the illness. And illness frequently led to job loss and the loss of health insurance.

Because of high out-of-pocket medical costs for co-payments, deductibles, and uncovered services, medically bankruptcy families with insurance had medical bills that averaged $17,749 versus $26,971 for the uninsured. Costs averaging $22,568 were incurred by those who initially had insurance coverage but lost it in the course of their illness.

The research was the first conducted nationwide on medical causes of bankruptcy. The researchers surveyed a random sample of 2,314 bankruptcy filers during early 2007, examined their bankruptcy court records, and conducted extensive telephone interviews with 1,032 of the bankruptcy filers.

Although Congress made it harder to file for bankruptcy in 2005, which caused a sharp drop in filings, personal bankruptcy filings have soared as the economy has deteriorated, and are now back to the 2001 level of about 1.5 million annually.

Dr. David Himmelstein, the lead author of the study and an associate professor of medicine at Harvard, commented, “Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy. For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments, and deductibles that illness can put you in the poorhouse. And even the best job-based health insurance often vanishes when prolonged illness causes job loss – precisely when families need it most. Private health insurance is a defective product, akin to an umbrella that melts in the rain.”

“For many families, bankruptcy is a deeply shameful experience,” noted Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard, a study co-author, and a leading expert on personal bankruptcy. “People arrive at the bankruptcy courts exhausted – financially, physically, and emotionally. For most, bankruptcy is a last choice to deal with unmanageable circumstances.”

According to study co-author Dr. Steffie Woolhandler, an associate professor of medicine at Harvard and primary care physician in Cambridge, Massachusetts, “We need to rethink health reform. Covering the uninsured isn’t enough. Reform also needs to help families who already have insurance by upgrading their coverage and assuring that they never lose it. Only single-payer national health insurance can make universal, comprehensive coverage affordable by savings the hundreds of billions we now waste on insurance overhead and bureaucracy. Unfortunately, Washington politicians seem ready to cave in to insurance firms and keep them and their counterfeit coverage at the core of our system. Reforms that expand phony insurance – stripped-down plans riddled with co-payments, deductibles, and exclusions – won’t stem the rising tide of medical bankruptcy.”

A copy of the study can be obtained from Physicians for a National Health Program, a membership organization of over 16,000 physicians which supports a single-payer national health insurance program.

During the first quarter of 2009, owner give-ups nationwide rose by 24% over the first quarter of 2008. James Quiggle, a spokesman for the Coalition Against Insurance Fraud, says that “ditching your car for insurance money is not a new scheme. People have been ditching cars for as long as people have been on the road. What is new is the sheer volume of people willing to take this drastic step.”

The Dallas Morning News reported the case of Sonia and Erik Stice, who were charged with insurance fraud and arson on June 12, 2009. After firefighters found the Stices’ flaming Dodge pickup, Eric Stice told them that it was a gas guzzler and he couldn’t sell it in the depressed economy. In another pending case, former Dallas police officer Jose Gomez resigned in July 2008 over insurance fraud allegations when he was accused of falsely reporting his car stolen.

Quiggle attributes the increase in insurance fraud to the difficult economy and the resulting financial problems many face. “People are normally honest, but people are literally being driven to desperation by the recession,” he said. “People’s finances are being squeezed so badly that many are willing to risk a criminal record by committing insurance fraud as their personal stimulus bailout package.”

Another factor influencing the rise in owner give-up cases is the price of fuel. Claims of potential owner give-up cases were twice as high in October 2007, when gasoline cost $2.80 per gallon, compared to October 2004, when gas prices were about $1.50 per gallon.

There are other alternatives for people who are unable to afford their vehicles, and are looking for a legal way to unload them. By filing a Chapter 7 bankruptcy, it is possible to relinquish a vehicle without any liability for the deficiency that may result when the car is auctioned by the lender. In a Chapter 13 bankruptcy, if the consumer has owned the car for more then 910 days, the vehicle can be “crammed down,” meaning the consumer only has to pay what the vehicle is worth rather than the entire amount owed on the note. Even if the consumer has not owned the vehicle for more than 910 days, the interest rate can be lowered in a Chapter 13 case to about 4%, which may make the vehicle more affordable. While filing bankruptcy may be a drastic step, it is far better than committing a crime and possibly facing jail time.