Bankruptcy Case Update: Student Loan Discharge

In a recent decision out of the Central District of Illinois, the Court held that while a debtor's prior, sporadic payments on her student loans were likely all that she could afford, given that she was unemployed, her unexplained failure to participate in the income contingent repayment plan (ICRP), along with her extreme hesitance to consider jobs outside her chosen field of study and admission that, after unsuccessfully applying for such jobs, she had effectively given up looking for work, precluded a finding that the debtor had made the requisite "good faith" effort to repay her student loans and prevented her from obtaining an "undue hardship" discharge of this debt. To find that the debtor had made a "good faith" effort to repay her student loans, based on the fact that the debtor had paid off one of these loans with proceeds of a divorce settlement and made sporadic payments on others, the bankruptcy court, at a minimum, had to correctly explain why the ICRP or a similar program was a bad deal for that particular debtor, and could not simply dismiss her admitted unwillingness to participate in the ICRP as "not dispositive."

Educational Credit Management Corp. v. Krieger

Estate Planning Is For Everyone

      There a giant misconception that estate planning is just for the rich. Growing up, before becoming an attorney I used to have a false belief of estate planning. When I heard “estate planning”, I envisioned some millionaire sitting down with an attorney coming up with ways of how to hide money in Island countries and writing five hundred page trust documents that keep his money out of the hands of the government forever while showering his family with wealth.

      I could not have been more wrong. Estate planning is making sure that not only are your assets distributed in the way you wish when you pass, but that the end of your life wishes are emphatically published to all so that there is no confusion, strife, or bickering among your family.

      The primary instruments that are used for estate planning are: Will, Power of Attorney, Power of Attorney for Health Care, and a Living Will.

       The Powers of Attorney give a person who you appoint the power to take care of your finances and health care decisions if you reach a state of mental incapacity, whether from illness or injury. You can put restrictions on your attorney-in-fact or give him free reign. Usually this power goes to a spouse or other family member.

     The Living Will, also known as an “affirmative directive”, authorizes, or does not authorize, the withholding of artificially provided food, water, or other nourishment or fluids if the patient reaches a terminal state with no reasonable medical expectation of recovery.

       All of these documents are affordable for everyone, but so many people do not have these drawn up either because of the misconception that “Estate Planning” is for the very wealthy, or do not like to dwell on the end of their life. Make the smart decision and call an estate planning to get these documents executed to prevent hassles and inter-family strife at the end of your life.

Student Loans and Hardship Test

Recent Case Updated from the 9th Circuit:
In re Jorgensen 2012 WL 3963339

       Under the Brunner “undue hardship” test, a debtor seeking discharge of student loan debt must prove that (1) she cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if required 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, and (3) the debtor has made good faith efforts to repay the loans.

       The Court of Appeals held that the lower Bankruptcy court did not abuse its discretion by refusing to discharge $8,045.02 of Chapter 7 debtor's approximately $36,285 in student loan debt; the court refused to discharge $6,050 because debtor would not be paying rent during the five and one-half months that she was teaching abroad and she did not satisfactorily explain why the excess $6,050 was necessary to maintain a minimal standard of living, and the court refused to discharge $1,995.02 because debtor purchased a new vehicle prior to her trip and her car payment while abroad was not necessary to maintain a minimal standard of living.

Voided Mortgages in Bankruptcy

      Currently the hottest issue in Bankruptcy law, at least here in Nashville, TN, is stripping mortgages from a person's home. In order for any creditor to be paid in a Chapter 13 bankruptcy, the creditor must file a Proof of Claim. For unsecured creditors, such as credit cards and medical bills, the creditor merely has to file a Proof of Claim form and they are entitled to payment, and it is the burden of the debtor to rebut the presumption that he owes that debt. However, for creditors with collateral securing their loan, such as mortgages and car liens, the creditor must attach with their Proof of Claim, documentation that proves the claim is in fact secured. So for a mortgage, the bank with the mortgage must attach the Deed of Trust and the Promissory Note.

       Now, the collapse of the housing market for the past five years has unveiled many “mistakes” and “errors” of the banking mortgage industry. Once a homeowner signed a mortgage with a local bank or even a national/global bank, many of those mortgages were bundled, sold, and traded multiple times. However, the actual physical documents that were signed cannot be found because many of these transactions were done electronically. Therefore, in Bankruptcy Court, when the Proof of Claim for a mortgage is filed and the documents are not attached, or the documents attached have the name of a different bank on them, then the claim gets disallowed. Subsequently, section 506(d) of the Bankruptcy Code provides that to the extent that a secured claim is not allowed the lien securing that claim on the property is void. Thus, if the Bank cannot prove that they own the mortgage with a Deed of Trust and Promissory Note then the claim is disallowed, and then the lien may be stripped.

       Now, for a Bankruptcy attorney, I am going to discuss some strategies when this issue arises. First, the bankruptcy attorney must follow the Proof of Claims Deadline. When we receive the Notice of the Meeting of Creditors, on it is published the Deadline for Creditors to file Proof of Claims. We mark our calendars for these deadlines. According to our Local Rules, here in Middle Tennessee, the debtor has 30 days beyond this deadline to file a proof of claim on behalf of the creditor. So once this deadline approaches, we check to see if the secured creditors of a case filed their Proof of Claim. If they didn't we file one on their behalf. Obviously, we do not have the Deed of Trust or the Promissory Note, so shortly thereafter the Trustee of the case files a Motion to Disallow that claim. Next, we file with the Trustee an agreed order to hold the funds provided in the plan meant for the mortgagee, that way if the documents arise during litigation, the trustee has been holding those funds so the debtor doesn't fall behind in her payments.

       Now is when we file our adversary proceeding against the alleged mortgagee with the lien to strip the lien pursuant to section 506(d). Also, an attorney must be sure to properly serve the complaint on the bank pursuant to Rule 7004. Another good strategy, is when/if the bank responds with an answer, is to request discovery, production of documents, or subpoena the bank to produce the Note and Deed of Trust. Thus, if the bank cannot provide the documents, then the lien is stripped, or if the bank refuses to supply them, as a strategy to avoid saying the documents cannot be found, then you can ask for sanctions.

Property Taxes in Bankruptcy

      I wrote a post a few months ago on Property taxes is bankruptcy because we argued the case and the decision had yet to come down. Well, a couple of weeks after that post was written we the judge issued his opinion and the decision was split, partially granted and partially denied. 

      First, we won on the issue that "penalities" are not "fees, costs, or charges" that could be allowed for the secured creditor.  Therefore, a debtor's delinquent property taxes would be charged a 12% interest rate and not an 18% interest rate; moreover, the secured claim would only grow at 12% and not 18%.  One part of the decision the judge added in, and it was not argued by us nor the Metro Trustee's office, but was argued in the Chapter 13 Trustee's brief.  That issue was the fact that since, in this case, the debtor was solvent the Metro Trustee's office should be allowed an unsecured claim of the 6% penalty, but only from the date of filing to the date of the confirmation order. 

When Can Someone File Bankruptcy Again?

       A common question we receive is: "I filed bankruptcy [x] years ago, does that affect me?"   Section 727 of the Bankruptcy Code lists the amount of time that a person must wait if he has received a bankruptcy discharge.  The following are the amounts of years that must be between the filing dates of the bankruptcy cases and their respective Chapters:

                                     Between Chapter 7 and Chapter 7:   8 Years
                                     Between Chapter 7 and Chapter 13:  4 Years
                                     Between Chapter 13 and Chapter 7:  6 Years
                                     Between Chapter 13 and Chapter 13: 2 Years

       The six year requirement between a Chapter 13 and a Chapter 7 has two exceptions: (1) the debtor paid all "allowed unsecured" claims in the earlier case in full, or (2) the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor's plan was proposed in good faith and the payments represented the debtor's best effort.

New York Law Firm Likely to File Bankruptcy

       New York law Firm Dewey & LeBoeuf seems it is on the track to filing a Chapter 11 bankruptcy.  My first thought when seeing this headline was, "Why does a law firm have any debt at all in the first place?"  Answer #1: Many times as a firm grows, the next step to becoming a "big firm" is to purchase real estate and own its office rather than being a "mere tenant." The problem with this line of traditional thought is once the firm purchases real estate, it is no longer a law firm.  It is now a landlord, developer, and investor.  I understand the benefits of a firm purchasing real estate, and in many cases it is a good choice. Earn equity instead of paying rent.  The problem comes when the business uses debt to purchase the real estate.  I like to follow Dave Ramsey's advice of paying cash for everything, especially in business. 

       Answer #2: Another reason a law firm takes on debt is to fund a large case.  Many clients have great winnable lucrative cases but not the cash to fund one.  Therefore, it becomes the lawyer to fund the case and then take his fee through the winnings.  The problem here is (1) if you lose, you get lots of debt and no money to pay for it; (2) the winnings do not turn out to be that big; or (3) you win but the defendant has no assets for you to take.  If that were the case with Dewey & LeBoeuf, again what I cannot wrap my head around is why get debt? Dewey & LeBoeuf had over 300 partners and 500 employees. A firm that large should be able to handle litigation costs on a contingent fee case.  According to the following attached article, the firm had bondholders, which means the debt is more likely tied to litigation than real estate (my best guest). 

       More Dave Ramsey advice for businesses in general: if you are taking on a project, joint venture, expansion, etc., think about the risks and ask yourself, "If everything in this project were to fail would that bankrupt the business?"  If the answer is "yes", then do not take on such a project. 

For more on this likely Bankruptcy:

http://finance.yahoo.com/news/dewey-consider-bankruptcy-filing-source-030341955.html

The Automatic Stay and Creditor Harassment on Surrendered Property

       One of the most important and influential aspects of Bankruptcy is the Automatic Stay.  The Automatic Stay is just that, automatic.  As soon as the bankruptcy petition is filed, all of a debtor’s creditors are stayed (prohibited) from making any attempts whatsoever to take any property, money, income, etc., from the debtor.  This means that all lawsuits, phone calls, repossessions, foreclosure proceedings, EVERYTHING must immediately stop otherwise the debtor can receive money damages from the creditor for a stay violation. 

        Now just focusing only on Chapter 13 cases, a creditor does have the right to ask the court for permission to be relieved from the stay (Motion for Relief from Stay), for instance, in order to repossess a car that the debtor is not paying for or is uninsured.  Furthermore, many times in a bankruptcy a debtor will voluntarily surrender a car or home to the creditor. When this happens, the creditor usually does not need permission from the court to recover the collateral, as such permission is typically included in a confirmation order.  Here is an example from an actual order:  “The plan surrenders the debtors interest in collateral to the creditors listed below. The automatic stay has been lifted to allow these creditors to repossess the collateral upon which they have liens.”  Well when the stay is lifted, does that mean the creditor can begin harassing the debtor again?  As counsel for debtors, we say no; however, there are creditors who say yes!  While in my research I have yet to find a case that addresses this particular issue, I found many cases that are analogous. 

       For example, a reaffirmation agreement is a voluntary agreement between a debtor and creditor that allows a debt to be exempt from discharge and remain in effect after the bankruptcy (This is done for debtors who wish to keep cars or houses).  It has been held by many bankruptcy courts that a creditor can contact debtors about such an agreement since both parties have this right. However, litigation soon followed because the creditor was trying to harass the debtor into such an agreement.  Courts have held that while a creditor is allowed to contact the debtor for this purpose, the creditor cannot do so through harassment, threats, or coercion, as this defeats the purpose of the Bankruptcy Code protections.

       Usually, when property is being surrendered, the discourse between the creditor and debtor is tranquil and they arrange a time for the surrendered car to be picked up or a time limit for the debtor to move out of a house.  There is currently a case going on right now where the debtors moved out of their house, which was surrendered, two years prior but are still getting harassing and threatening phone calls about transferring the property.  Though the stay had been lifted, the debtors are contending that like reaffirmation agreements, surrenders cannot be coercive.  It will be interesting to see how the case turns out.

QWR: Qualified Written Request

Practice Tip for practicing Bankruptcy attorneys:  Qualified Written Request (QWR). 

      One thing we do at Nevin Law Firm is send out a QWR for any bankruptcy client who has a mortgage.  What is a QWR? Glad you asked.  A qualified written request gets its name from RESPA, the Real Estate Settlement Procedures Act.  This act, and Section 6 dealing with a QWR, was put in place to give borrowers of a mortgage a dispute resolution mechanism.  As most of us know, it is really hard to deal with large institutions such as a bank.  Always receive a recording, voicemail, put on hold, or told you called the wrong department.  Well a QWR was Congress's giving borrowers a weapon to combat this type of customer service when a borrower has a legitimate concern regarding his mortgage. Specifically, the QWR is for when a borrower is concerned that an error has occurred in calculating how much money is owed.  RESPA requires that when a QWR is received by a mortgage lender, the lender must send an acknowledgement of receipt within 5 days and answer or correct any alleged miscalucaltions and provide any requested information within 30 days (as modified by the Dodd-Frank Act).  If the bank fails to abide by these deadlines then a borrower is allowed actual damages, statutory damages (not to exceed $1,000), and attorney fees.  The bank, however, is allowed to give the borrower notice that they are extending the time to respond by up to 15 days so long as in the notice the provide reason for the delay. 

       Now, there are specific requirements of what makes a letter a QWR and just a letter.  The letter must state that it is a Qualified Written Request, state that the bank must abide by the requirements of RESPA, be mailed to the actual servicer (not servicer's attorney), and allege errors, omissions, of defects occurred in calculating payments, fees, costs, charges, notice, etc. (These requirements are not an exhaustive list). This is a great tool for attorneys because it does a number of things: (1) if it goes unanswered you get fees; (2) forces the bank to provide you with mortgage documentation so you can look for errors; and (3) allows you to dispute any differences made on a proof of claim filed by the servicer in the bankruptcy case. 

      Major Caveat!! A couple things you need to be careful about.  QWRs are not to be used as a "fishing expedition" and doing so can have the potential to adversely affect a client.  A Deed of Trust may have a provision that in a dispute the borrower is responsible for legal fees.  In such a case, if used as a "fishing expedition" and there is no actual specific error alleged, you may have added a few hundred more dollars to the balance of your clients mortgage.
 

      Before sending out your own QWR and taking action to recover damages and fees if no response is given, be sure to read section 6 of RESPA and research the caselaw as this article only scratches the surface. 

Pitfalls of Bank's Pilot Mortgage Forgiveness Program

       Recently a large national bank has announced that it is launching a pilot program that will allow some homeowners facing foreclosure stay in their homes. The program would allow homeowners, who are behind in their mortgage, deed the property back to the bank and then have their mortgage debt forgiven. At this point the former homeowner would then lease the property from the bank at a lower rent than the monthly mortgage payment. The tenant would also not be responsible for the property taxes or insurance.

       This program benefits the bank for a few reasons. The bank saves the expenses it costs them to do a foreclosure (The average foreclosure takes nearly two years to complete, according to Florida-based Lender Processing Services, and costs nearly $78,000, according to a Congressional estimate.). However, the bank will face some additional costs/ responsibilities. The bank will bear the costs of property taxes, insurance, maintenance, land scaping, repairs, security, waste disposal, and other property management requirements. Furthermore, the bank would need to employ an attorney to oversee any evictions that would occur.

       For the property owner this may seem like a good way to remain in his home, however there would be some negative consequences. For instance, forgiveness on a debt is considered by the IRS as taxable income, so the homeowner could be left with a very large tax bill after a $150,000 mortgage is forgiven. Moreover, the former homeowner could be removed from the property a lot faster than if he owned the home. If the property were being foreclosed, the procedure could a couple of months and the homeowner has the protection of the Bankruptcy Code, where filing bankruptcy would cease the foreclosure and allow the debtor to make up any missed payments. However, with the former homeowner now renting his house, he can be evicted from the house in about two to three weeks if he were to miss a rent payment. Also, the Bankruptcy Code is very favorable to landlords. Remaining in the house during a bankruptcy does not alleviate the tenant's responsibilities from paying rent, while a homeowner can remain in the home a lot longer without making a mortgage payment; the post-petition rent that comes due during the bankruptcy will also not be discharged, and the tenant can later be sued for it, unlike a homeowner.

       Though it seems like this program could help the bank and homeowner, it may also be just substituting one problem with another.

Nashville Probate Committee Hosts Judge Kennedy

       Today, the Nashville Bar Association Probate Committee had the pleasure to have Davidson County's Probate Judge Randy Kennedy speak at our monthly meeting.  Various topics were discussed including new procedures for his courtroom and advice/tips for petitions to probate wills, specifically lost wills. But the bulk of the discussion involved the Judge discussing the proposed amendments to the State of Tennessee's Conservator and Guardianship laws.  Judge Kennedy summarized many of the changes and possible ramifications.  Overall, his main message was for the Tennessee bar members to read through the legislation and submit any comments, concerns, and questions to the legislature.  

       The Tennessee Bar Association is putting together a committee to research the new proposed amendments and submit a report discussing the positions of the probate bar.  A future article will include a more thorough discussion of the amendments and the specific provisions and their potential ramifications.  If interested, the following are links to the proposed amendments:

http://www.capitol.tn.gov/Bills/107/Bill/SB2519.pdf

http://www.capitol.tn.gov/Bills/107/Bill/SB2398.pdf

http://www.capitol.tn.gov/Bills/107/Bill/HB2456.pdf

Property Taxes in Bankruptcy

       As I write this article, the issue of property taxes is still unsettled in the Federal Districts of Tennessee, the 6^th Circuit, and in Bankruptcy law all over the country. Nevin Law Firm was fortunate enough to be the ones with the case to settle this newly arisen issue.

       This issue involves the treatment of property taxes in a Chapter 13 plan. Tennessee statute states that late paying property taxes are subject to 1% per month (12% per year) interest rate and a .5% per month (6% per year) penalty for a total of 18% rate. Section 506 of the Bankruptcy Code determines what post-petition interests and “fees, costs, and charges” are allowed. We are arguing that the additional 6% penalty is not a fee, cost, or charge and therefore should not be allowed. Metro Trustee, obviously is arguing they are entitled to the additional 6%.

       Now, for a Chapter 13 debtor every dollar counts. Debtors are placed on a very tight budget to pay as much as they can afford to their creditors so an additional 6% payment can break a budget, even if its only a few dollars extra per month. Additionally, after combining all these cases, the 6% penalty can mean hundreds of thousands of dollars to the counties of Tennessee and even more when addressing the entire 6^th Circuit. Another implication of this is that if a “penalty” is found to be a “fee, cost, or charge” other secured creditors will be able to collect post-petition penalties that accrue in the case. This will surely equal millions of dollars.

       We argued the issue two weeks ago and submitted supplemental briefs last week. Currently, the Judge is researching and writing his own opinion to decide whether we or the Metro Trustee is correct in interpreting the Bankruptcy Code, and I am eagerly awaiting his decision. It is very likely this case will go to the 6^th Circuit Court of Appeals and possibly the Supreme Court (which would be such an honor as a venue to argue the issue). Thus no matter the current decision, the issue will continue to be contested for the next couple of years. Again, we are very excited at the Nevin Law Firm to have the honor and responsibility to be handling this case and will post an update as soon as we receive the decision.

Loan Modifcations: Tips and Warnings

       As a Bankruptcy Firm, we see many good, hardworking people whose homes are in foreclosure. And after all these stories, I am surprised to see that many of them fell behind because of Loan Modification Programs. To be clear, modifying your loan can help you financially; however, I want to set out many tips and warnings you need to know before attempting a modification so you do not fall victim to what has led others to foreclosure and consequentially, bankruptcy.

       First, you need to know the truth. Very few borrowers after the process end up with a loan modification. I recently spoke with a friend of mine in the mortgage loan market and learned that approximately only 6% of those who apply end up lowering their mortgage payments. Six percent, that's all!

       Second, if you want to hire an attorney to work with you and your bank for a loan modification, DO NOT hire an attorney, agency, or professional who wants to be paid up front. I've heard plenty of stories, where a person pays a couple thousand dollars to an attorney to work with their bank. That money would be better spent on paying down your actual mortgage or to savings. Lots of times, these agencies are scams who take your money and run. Other times they are legitimate, but remember SIX PERCENT success rate. The only fee arrangement you should make is that the attorney you hire will receive a percentage of any savings from a successful modification. If anyone wants money up front, go somewhere else. A contingent fee makes the person you hire actually try to succeed since that is the only way of him getting paid. If he has already been paid, then he won't care if you end up being part of the 94% who fail.

       Lastly, keep making your mortgage payments during the process! Many people have said how their Bank told them that they don't have to make payments while applying, or that the bank only accepts those who are behind in their mortgage. If you must be in default to qualify, do not do it on purpose, stay current. And when your bank tells you that you are not obligated to keep making payments, the fine print says that if you do not succeed in getting a modification, all of those missed payments come due immediately along with interest and late fees. And then the bank ends up foreclosing on your home. So keep making those payments, and if you choose not to, do not spend that money. Save it on the great chance that do not succeed in modifying your loan.

       The Loan Modification is a long, complicated, and drawn out process that will likely lead to nothing. So please be smart about your money. Hopefully, you may end up as part of the 6%, but as you go through the process, remember these helpful tips and warnings.

Judge Mashburn's Investiture

       This past Friday, February 24, in Nashville was the investiture of Randal Mashburn as U.S. Bankruptcy Judge for the Middle District of Tennessee. Mashburn had previously practiced Bankruptcy law with the firm Baker, Donelson, Bearman, Caldwell & Berkowitz PC in Nashville. The oath was given by the Honorable Keith Lundin, Chief U.S. Bankruptcy Judge for the Middle District of Tennessee, with Mashburn's wife holding the Bible. Mashburn's other family members also helped don the Judge with his new robe. Also, present at the ceremony was the 6^th Circuit Court of Appeals judges as wells as the Federal District Judges for Middle Tennessee. Presentations were also given by TBA President-Elect Jackie Dixon and Robert Mendes, immediate past president of the Nashville Bar Association. 

       Judge Mashburn is extremely intelligent, has practiced Bankruptcy law for decades, and is well versed in Bankruptcy law.  The Middle District of Tennessee is lucky to have him as our newest judge.

HOA Fees and Foreclosures

       When a bank forecloses on a property the title of the property passes from the borrowing homeowner to the bank. Once this occurs, the bank not only becomes responsible, but also liable for paying the HOA fees if the house is subject to them. However, a homeowner can be stuck in a financial mess when a bank actually forgoes foreclosing. Banks are smart, and when they find out that the home they have begun foreclosure proceedings on has HOA fees, they will actually cease foreclosure and let the HOA fees build up against the homeowner.

       We recently saw this with one of our clients. The husband of the married couple had lost his job. Unable to pay the mortgage, the bank began foreclosure proceedings. In anticipation of the foreclosure the couple moved in with his caring mother. However, once the bank realized that HOA fees were required to be paid, they ceased the foreclosure. So as of now, the bank will not take the house, the couple no longer lives there, no one will buy the house because it is worth less than the mortgage on the property, and because the title of the property is in the couple's name, the HOA has sued the couple for past due HOA fees. So without the ability to get the title of the house out of their name and the ever increasing HOA debt, the only way out of this rut was to file bankruptcy. It was a very unfortunate situation, but when an underwater house is coupled with HOA fees, banks have figured out its better for them to stick the homeowner with the bill.

A Truly Free Credit Report

       All of us have likely seen those commercials offering us to view our credit score for free. But if you can read the fine print in the commercial, while its up for about one second, the offer is only valid if you enroll in one of their programs.

       However, don't be sucked into such commercials and potential fees. The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. The companies promoting free credit reports to you are just using this law to get you your credit report in exchange for your membership. Please refrain from using these companies to trick you into their membership programs.

       To order, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print it from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Visit the Federal Trade Commission's website on this for more information and some frequently asked questions: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm

Bankruptcy 2011 Statistics

       A statistical breakdown of the Country's Bankruptcy filings were recently released by the National Bankruptcy Research Center (NBKRC), and Tennessee unfortunately did not fare well. The county with the highest bankruptcy filings per capita was Shelby County, Tennessee with 18,764 per million inhabitants (12,814 filings total filings). And Tennessee, overall, ranked the 4^th highest of bankruptcies filed per capita. Aside from Tennessee's clear struggle in this recession, overall the country's filings dropped 12%, the first drop in bankruptcy filings since 2006 (the year after the Bankruptcy Code was amended to make it harder for people to qualify for bankruptcy).

       However, according to the NBKRC, “bankruptcy filings in December were almost exactly the same as November (101,000), but December filings are typically quite low. So, on a seasonally adjusted basis filings were actually up 7% from November.”  Accordingly, it is predicted that 2012 filings will increase.  Another interesting note, putting aside from Shelby county's #1 ranking, the counties ranking 2-10 are all rural. This is likely due to the fact that (1) rural counties generally have lower incomes, and (2) more people per capita own their homes in rural counties while, per capita, more people rent in urban counties, making rural citizens more susceptible to debt and foreclosure, a strong catalyst forcing one into bankruptcy. 

       By looking at these results, it seems that Tennessee is in for another rough year of Bankruptcy filings as well as the rest of the country.   Though the economy is muddling through a recovery, the slow growth is insufficient to allow those indebted with credit cards, mortgages, medical bills, and car loans to cure those defaults. 

      For more information on the NBKRC and the research provided by Professor Ronald Mann of the Columbia Law School, please visit https://www.nbkrc.com. 

Cars in Bankruptcy: The Cram Down “910 Car Claim”

       One of the luxuries of the Bankruptcy Code is the ability to Cram Down the amount you pay on your vehicle. The Bankruptcy Code allows you to (1) lower your interest rate to as low as 3.25% instead of keeping it at that 18% interest rate at which you bought your car; and (2) lower the overall payment of your car to its value instead of the balance on the loan. (This also includes Title Loans on your car) There is only 1 caveat. The loan on the car must have been acquired more than 910 days before the filing of the Bankruptcy case. If the loan on your car is less than 910 days, then you will have to pay the full balance on the loan but not the contractual interest rate. Here is an example to illustrate.

       Assume you bought your car 2 and a half years ago for $25,000 at an interest rate of 15%. Your remaining balance on the loan is $12,500, but the value of your car is now $6,000. Well, in the bankruptcy, you are allowed to “Cram Down” the loan to the value of the car and reduce the interest rate to as low as 3.25%. Therefore, you are now paying only $6,000 at 3.25%. Moreover, we can assume that you only had 2 years left to pay on balance of the loan according to its terms, but through bankruptcy you also get to extend the loan to another 3 or 5 years which would make your payments considerably lower. Under the original terms, the monthly payments would be $695.77. But under the Cram Down, the payments would be $108.48 if extended out by 5 years.

       It must also be noted that the 3.25% is a general rate that has been established for the Middle District of Tennessee, other districts and circuits may have different standards.