The Bankruptcy Lawyers Blog

An editorial was featured in the Saturday, August 27 edition of the New York Times which examined possible legislation allowing private school student loans dischargeable through bankruptcy.

Since the start of the recession, record numbers of Americans have enrolled in college in search of new skills that would improve their employment prospects. Unfortunately, far too many students enrolled in expensive for-profit schools end up dogged by ruinous debts, with little in the way of skills or credentials to show for their efforts.

The schools sometimes push these students into high-cost private loans that they can never hope to repay, even when they are eligible for affordable federal loans. Because the private loans have fewer consumer accommodations like hardship deferments, the borrowers often have little choice but to default.

Worse yet, these loans and the bad credit history follow the debtors for the rest of their lives. Even filing for bankruptcy doesn’t clean the slate.

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Blog writer Katie Porter has written an interesting article about how the uscourts.gov website “promotes” Chapter 13 as a preferable choice for bankruptcy. Consumers doing their own research on bankruptcy might see this as some type of conspiracy. What we can learn is that it’s important to know what’s being said out there and what perceptions people considering bankruptcy might be coming into your office with.

Here is the post:

Today, I went looking for the court costs payable by chapter 13 debtors who wants to convert their cases to chapter 7. I admit that like many Americans my starting point was Google. I quickly landed here, at the Bankruptcy Basics page provided by the Administrative Office of the U.S. Courts, a division of the judiciary. The site says that it "provides basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed." From this description, you might expect a factual, value-neutral description of the fundamental choice facing all consumer debtors: whether to choose chapter 7 or chapter 13. But look what I found when I read up on Chapter 7 and Chapter 13 . . .

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Throughout the year, we’ve seen the reports on the decrease in consumer bankruptcies each quarter in 2011. But with the economy still in the toilet for most Americans, is the decrease really because things are getting better? Or is there an actual hopelessness that is stopping people from filing?

Nina Keck from Vermont Public Radio posted this report tackling this issue. It’s important for people to know that the bankruptcy option is a whole lot better than doing nothing at all. This is a great wake up call. Here is the full transcript of the piece which you can listen to here.

Reports from Wall Street have been bleak this week. So, news that bankruptcy filings were down compared to last year might appear to be some good news.

But as VPR's Nina Keck reports, experts say the reasons behind the decline are troubling.

(Keck) The number of Vermonters filing for bankruptcy this year has dropped dramatically - 30 percent fewer filings than last year.

(Kainen) "I think you very much need to look behind the numbers to see why that is."

(Keck) Attorney Michelle Kainen is chair of the Vermont Bar Association's bankruptcy section. She says that while the number of people seeing her for a bankruptcy consultation hasn't changed, fewer people are actually going through with the process.

(Kainen) "I think there's a degree of apathy that's just come over a segment of the population and they just don't care anymore. They have just surrendered to their situation."

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In a recent article by Chip Giambrone of WestLaw Journal Bankruptcy, he writes about a novel decision by a California-based federal appeals court to allow a Chapter 13 debtor to “cram down” the negative equity in her auto loan does not create a conflict with other federal appellate courts, the debtor says in a brief asking the Supreme Court not to hear her lender’s appeal.

The 9th U.S. Circuit Court of Appeals ruled last year that Marlene Penrod can “cram down” the portion of an automobile loan attributable to the financing of negative equity in her trade-in vehicle.

Her lender, AmeriCredit Financial Services, has asked the Supreme Court to hear an appeal of that ruling, saying it has created a split with eight other federal appeals courts that have ruled lenders have a purchase-money security interest in the negative equity of a vehicle traded in when a new vehicle is purchased.

Negative-equity financing occurs when a car buyer trades in an automobile but owes more on the vehicle than the dealer will give on the trade. The dealer will pay off the full lien on the old vehicle and tack the amount in excess of the trade-in value onto the loan on the new car.

Penrod says no conflict exists because her case turns solely on an interpretation of California law, which makes Supreme Court review inappropriate.

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