Uncovering the student loan myth.

The belief that student loans are never dischargeable in bankruptcy makes us us cringe every time we see it – and we see it a lot.

We cringe because it’s not true. You actually can get your student loan discharged in bankruptcy in some limited cases. In fact, according to a study published in 2011 by Jason Iuliano, at least 40 percent of borrowers who do include their student loans in their bankruptcy filing end up with some or all of their student debt discharged.

The problem is the old tale that has consumers thinking there’s no chance to have these loans discharged, so they don’t try. Iuliano’s report found that only about 0.1 percent of consumers with student loans attempt to include them in their bankruptcy proceedings.

To be clear, if you borrow money, you have a moral and legal obligation to pay that money back, even if that means making some financial sacrifices. It is strongly recommended that students do more cost-benefit analysis and long-range planning before taking on student debt of any amount.

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Michigan Bankruptcy Myths

Here are 10 myths about the Chapter 7 bankruptcy, Chapter 11 bankruptcy, and Chapter 13 Michigan bankruptcy laws:

1. You Cannot File Bankruptcy Under The New Law

Many people believe that the new bankruptcy law passed in 2005 essentially made bankruptcy unavailable to most people. While eligibility for a Chapter 7 bankruptcy may depend on your income, bankruptcy is still available. In many cases, all of the benefits under the old Michigan law remain under the new law.

2. You Will Lose Your House

While you cannot wipe out a mortgage in bankruptcy, if you are able to maintain your payments on your house you can keep it. If you file a Chapter 13 monthly payment bankruptcy, you can use your bankruptcy plan to catch up past due payments over a much longer period than the bank is like.

3. You Will Lose All Your Possessions

People are often afraid that if they file bankruptcy they will lose everything they have. The new Michigan bankruptcy laws generally allow you to keep personal items such as the equity in your home, appliances, furniture, vehicles and similar household property. In most cases, you can also keep your retirement accounts.

4. Your Bankruptcy Will Be Public Knowledge

While anyone in theory can go to the Bankruptcy Court and review case files, this is very uncommon. Most people that file bankruptcy do so without their friends or family knowing anything about it.

5. You Will Never Be Able To Get Credit Again

While bankruptcy has a negative effect on your credit rating, it also reduces your overall debt. Many individuals are able to rebuild their credit over a matter of a few years after filing bankruptcy, and find that bankruptcy itself does not prevent them from obtaining loans for a vehicle or a home.

6. Bankruptcy Cannot Wipe Out Court Judgments

Many people believe that once a there is a court judgment there is nothing they can do. In fact, bankruptcy prevents a court judgment from being collected. However, certain judgments, such as divorce judgments, generally are still collectible.

7. Creditors Will Continue To Call You

Once you file bankruptcy, the law prevents a creditor from contacting you directly or by phone or mail in an attempt to collect a debt.

8. You Can Pick Or Choose Which Debts To Include In A Bankruptcy

When you file Bankruptcy, you need to notify all of your creditors. Some people prefer to leave certain debts off their bankruptcy and “not include” them in the bankruptcy. While on some cases you can agree to pay a debt despite the bankruptcy, you must list all of your debts and creditors in the bankruptcy papers.

9. You Still Owe All The Unpaid Back Taxes

While taxes are sometimes non-dischargeable, you can often discharge personal income taxes as long as they are at least 3 years old and you have filed returns.

10. Filing Bankruptcy Is Difficult

While it is important to carefully review all of the information included in a bankruptcy filing, we strive to make the process very smooth and relatively painless.

Call Firebaugh & Andrews today for your free evaluation. 734-722-2999

Can Chapter 7 bankruptcy help me get my driver’s license back?

Question

Some time ago I got fined for a traffic violation. I wasn’t able to pay the fines, and the state took away my driver’s license. I am planning to file for Chapter 7 bankruptcy and hope to discharge the traffic fines. If I do, can I get my driver’s license back?

Answer

If the state took away your driver’s license because you didn’t pay your traffic fines, you can’t discharge (eliminate) those fines in Chapter 7 bankruptcy. But Chapter 7 bankruptcy can help you pay back your traffic fines by eliminating many of your other debts. Read on to learn more about whether Chapter 7 bankruptcy can help you get your driver’s license back.

You Can’t Discharge Traffic Fines in Chapter 7 Bankruptcy

You can’t discharge certain types of obligations in Chapter 7 bankruptcy. Unfortunately, traffic fines are one of those debts. Bankruptcy laws state that a Chapter 7 discharge will not wipe out fines or penalties you owe to a governmental unit.

This means that filing for Chapter 7 bankruptcy will not discharge your outstanding traffic fines. But if you were unable to pay your fines because you had too many other debts, Chapter 7 bankruptcy can help you by wiping out many of your obligations and allowing you to pay the fines and get your driver’s license back (discussed below).

Chapter 7 Bankruptcy May Help You Pay Your Traffic Fines

Just because you can’t discharge your traffic fines in Chapter 7 bankruptcy doesn’t mean that filing a Chapter 7 case will not help you. In many cases, debtors file for Chapter 7 bankruptcy because their income doesn’t allow them to meet all of their monthly financial obligations.

If you could not pay your traffic fines because you didn’t have any money left after paying obligations such as credit cards and medical bills, filing for Chapter 7 bankruptcy can help you eliminate those debts and free up money in your budget. If you will have enough money in your budget to pay the traffic fines after filing for Chapter 7 bankruptcy, it might still be in your best interest to file.

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Can a Chapter 13 Bankruptcy Affect Your Student Loans?

It is fairly common knowledge that you can’t get rid of your student loans by filing for bankruptcy. While there are rare exceptions, student loans are non-dischargeable and will be with you even after the bankruptcy is over. But there are other ways a Chapter 13 bankruptcy affects your student loans. Find out what to expect before you decide if filing is right for you.

This blog post will cover how a Chapter 13 Bankruptcy payment plan can affect your student loans. It will describe how the process affects your payments, collections, and whether you may pay less than the full amount when the Chapter 13 bankruptcy is over.

Student Loans are Non-Dischargeable Debt

Students coming out of college or graduate programs bring with them thousands of dollars of student loan debt. The Class of 2017 owes an average of $28,650, according to the Institute for College Access and Success. Nationwide, that adds up to a total of $1.56 trillion in student loans spread out over 44.7 million borrowers.

Employment trouble, health problems, or other financial concerns can make it hard, or even impossible to keep up with your student loan payments. With such a large debt looming over your head, bankruptcy may seem like a logical choice. But if you choose to file, you will likely come out of bankruptcy still owing your unpaid student loans. That is because student loans have been labelled “non-dischargeable debt”. That means even when all your medical debt or credit cards are wiped clean, your will still have to pay back your student loans. This is true no matter which consumer bankruptcy choice you make: Chapter 7 or Chapter 13.

A Word About Undue Hardship

There is one small exception to the rule that student loans are non-dischargeable debt. Former students who qualify for an “undue hardship” exemption can sometimes get some or all of their student loan debt discharged as part of a bankruptcy. To qualify for an undue hardship exemption you will need to demonstrate that:

  • You couldn’t even maintain a minimum standard of living with your current income and expenses
  • Whatever is causing your hardship will probably continue for a significant period of time (such as a permanent disability)
  • You have made a good faith effort to repay your student loan debt as your income allows

However, this is very rare. Most borrowers will not qualify under this three-part test. While it may be an option in certain unusual circumstances, you should not count on an undue hardship exemption to rescue you from your student loan debt. Instead, you should talk to Firebaugh & Andrews for your free evaluation and help you decide if Chapter 13 bankruptcy is best for you.

Chapter 13 Bankruptcy Puts a Hold on Student Loan Collections

Neither Chapter 7 nor Chapter 13 bankruptcy options discharge student loan debt. But a Chapter 13 bankruptcy can affect your payments, and how you deal with collections efforts. A Chapter 13 bankruptcy puts an automatic stay on all debt collections, including student loans. That means once your Chapter 13 bankruptcy and payment plan have been filed, you won’t have to deal with collections companies trying to get you to pay back what you owe. That stay can last for 3 to 5 years as you work through your Chapter 13 payment plan.

In the meantime, your Chapter 13 bankruptcy can also reduce your monthly payments and extend the time you have to pay back your student loan debt. When it comes to payments, bankruptcy treats student loans just like any other “non-priority unsecured debts” (including medical bills, credit card debts, and loans from family members). You and your bankruptcy attorney can propose a payment plan that divides up all your disposable income (after allowable expenses like rent and food) between your creditors on a “pro-rata” basis. That means whichever creditors have a higher balance get a higher percentage of your money, but no one creditor can claim to be entitled to everything you have to pay. While you will still be paying your student loans during your Chapter 13 bankruptcy payment plan, it may not have to be at the same, unaffordable amount every month.

What Happens to Your Student Loans When the Bankruptcy is Over

When your Chapter 13 bankruptcy is over, the non-dischargeable nature of student loan debt kicks back in. While the remaining balance on your credit cards and other unsecured debts will be forgiven, you will still owe the rest of your student loans. The loans will also have continued to accumulate interest during the bankruptcy process, which may affect your monthly payments or total loan repayment going forward.

Bankruptcy And Bad Credit Issues No Longer Means No Mortgage

Just because you have been bankrupted doesn’t mean it’s impossible to become a home owner again soon. This articles blows away the myth that you will have to wait 10 years to get a mortgage if you have been personally bankrupted.

In the past, traditional mortgage lenders have automatically rejected people who had declared personal bankruptcy.  Many potential home-buyers felt they must wait at least seven to 10 years after a bankruptcy to be eligible to become homeowners. This is a common misconception for many who believe their chance of home ownership is a long way away.

While some people declaring bankruptcy have had trouble managing their money, a large number of those declaring have simply experienced unfortunate events. Americans are filing bankruptcy at record-high levels over the last 10 years.

There are some ominous signs out there…

Though a bankruptcy is certainly a blemish on a credit report, it does not necessarily disqualify a borrower. Recognizing that sometimes bad things happen to good people, some select loan officers are becoming more willing to take a calculated risk.

Some lenders use a securing system to determine whether potential buyers are a worthwhile risk. Unfortunately, bankruptcy gives a low rating. However, select lenders are beginning to look beyond the rating and look at the individuals in need.

Instead of waiting two or four years after being discharged from bankruptcy, some mortgage professionals are willing to give a home loan much sooner. Those who have declared bankruptcy liquidation may be eligible for a loan one year after discharge.

Another common misconception is that a previous bankruptcy on your credit report will require you to have a large down payment and pay extremely high interest rates. There are currently programs available with as little as 5 percent down with very attractive rates.

Some lenders are even pre-qualifying buyers for a loan, saving time and making the home-buying experience easier and more efficient. When a buyer pre-qualifies they will have the advantage of greater negotiating power.

No matter what the situation, select mortgage professionals have a program that will work for the buyer with a bankruptcy history. If a buyer cannot get approved, there are customized plans that can re-establish credit to help the buyer become mortgage-ready, ensuring home-ownership in the future.

Because of new options, bankruptcy no longer needs to stand in the way of getting a home loan. With the help of more creative lenders, those who have experienced financial difficulty will have an easier time getting a mortgage.

For a free consultation call Firebaugh and Andrews. 734-722-2999

How a Bankruptcy Attorney Can Help You

Corporations and other businesses are required to declare bankruptcy through an attorney. However, individuals are allowed to represent themselves in bankruptcy proceedings. You may be tempted to declare bankruptcy without a lawyer’s assistance. The process may appear simple. You may wish to avoid involving others in a situation that is already stressful. And obviously, money can be tight during this process. However, there are excellent reasons to ask for an attorney’s advice and assistance during any bankruptcy.
A bankruptcy proceeding can be an extremely stressful situation. There is no reason to go through that stress without getting the most benefit possible out of it. An attorney can help you ensure that your bankruptcy goes smoothly and save you money—as well as stress—in the long run. Here are some things a bankruptcy attorney can offer:
Information. Bankruptcy law can be complex. A bankruptcy can take several months to complete. This can add stress to what is already a bad situation. An attorney who practices in bankruptcy law can help you to understand this process. Your attorney can offer you strategies and alternatives that you might not have known about. Having this information can be vital to planning your bankruptcy. An attorney can also give you valuable advice during the process of a bankruptcy.
Expertise. Bankruptcies require a lot of paperwork. Different bankruptcy courts have different rules. You must provide the bankruptcy court with information on all of your debts, property, and financial information. Bankruptcies involve communication with the court, creditors, and trustees. You must also follow the rules specific to the court in your jurisdiction.
All paperwork for a bankruptcy must be filled out correctly, or you can risk not having your debts cancelled. Bankruptcy documents are randomly audited to prevent fraud. If you make a mistake in providing information, you can face prosecution for fraud. Obviously, the best way to protect yourself is to Call Firebaugh and Andrews at 734-722-2999  who has experience in these issues.
To get the most out of your bankruptcy proceeding and protect yourself from mistakes, it is vital to get an attorney’s assistance. An attorney who practices in bankruptcy law will understand how to submit information to the courts and to your creditors, to ensure that your debts will be discharged.
 
Protection. Even after you retain a lawyer, your creditors can still contact you. However, Firebaugh & Andrews can help to stop harassing phone calls. Having someone else take over the hassle of dealing with your creditors can save you time and energy—and make sure that you gain peace of mind during as well as after the bankruptcy process. Your attorney can also help you make sure that debts discharged during your bankruptcy do not show up on credit reports in the future.
Bankruptcy can be a painful process, but there are ways to reduce the stress involved.
Firebaugh & Andrews can help, call today for your free consultation. 734-722-2999

 

5 Bankruptcy Myths Debunked

While some assume that a bankruptcy filing means the person can’t resist the temptation of credit cards (and in some cases, it may), most people who will file for bankruptcy do so for other reasons. Here’s a look at some of the myths surrounding consumer bankruptcy.

1. People who file for bankruptcy are financially irresponsible. “There’s always going to be some kind of abuse, but it’s far more likely that people run into very serious personal problems in one of three areas: losing their job, going through a divorce, or suffering a serious illness,” says Walter W. Miller Jr., who teaches bankruptcy law at Boston University School of Law.

Long-term unemployment, the legal fees associated with divorce, the cost of running two households following a divorce, or the high cost of medical care have all driven well-intention Americans into bankruptcy. As of April 2012, more than 5.2 million Americans had been unemployed for six months or longer, according to the Bureau of Labor Statistics. Meanwhile, a 2011 survey by the Centers for Disease Control and Prevention found that 20 percent of American families had problems paying medical bills in the past year.

2. Bankruptcy discharges all past debts. Many people file bankruptcy hoping they’ll be able to start fresh afterwards, but several types of debt are not discharged by bankruptcy. “If you have domestic support obligations [such as alimony or child support], those can’t be removed under any circumstances, “If you have to pay restitution because of a crime, that’s another debt that can’t be removed.”

As a result of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, student loan debts also fall in that category, although a Congressional bill called the Fairness for Struggling Students Act would allow private student loans to be discharged in bankruptcy court. According to Epstein, student loans can be forgiven if you’re able to prove a hardship such as permanent disability, but that process is separate from bankruptcy.

Tax debts are sometimes reduced or discharged depending on the circumstances, but as Epstein says, “if you didn’t file tax returns, there’s no way you’re going to get those tax debts removed.”
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Filing for Chapter 11 Bankruptcy Protection (Business Bankruptcy)

What Happens Pursuant to Chapter 11?
When a business files for Chapter 11, the business is provided an opportunity to propose a reorganization plan. If an agreement with creditors is not reached during that time then the creditors are provided with an opportunity to propose a reorganization plan.  The plans must meet specific criteria in order for to be approved by the bankruptcy court.  If a reorganization plan is not reached and agreed to by the creditors then the Bankruptcy Court can either convert the case to a Chapter 7 bankruptcy proceeding or it can discharge the case entirely.

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What are the Basics of a Chapter 7 Bankruptcy?

When people talk about filing bankruptcy, they usually are referring to Chapter 7 bankruptcy, which allows you to discharge, or wipe out, most debts that you owe. In many cases, filing Chapter 7 bankruptcy is the quickest and easiest way for a person who owes a lot of debt to get a “fresh start” in life. So long as you are eligible for Chapter 7 bankruptcy relief, and depending on your individual situation, you could find yourself free of all dischargeable debts within just a few short months.

Nine Reasons to File Bankruptcy in the New Year

Is this the year you’ll get your financial house in order? Here are nine reasons why this may be the year you take stock finally do something about that debt you’ve been struggling to manage.

1.  Eliminate Crippling Credit Card Debt

Are you making the minimum payments on your credit card debts?

Are you missing payments on your credit card debts?

Are you taking cash advances or using your credit cards to pay living expenses like groceries, utilities or even car payments?

Have the credit card companies increased your interest rates?

If any of these is true, it’s time to think about how you’re going to retire that debt. If you’ve looked at how to manage the debt to get it paid off, and that doesn’t seem workable to you, consider filing a bankruptcy case. It may be the only way to eliminate the debt once and for all.

2.  Eliminate Unpaid Medical Debt.

Medical debt is one of the major reasons many people file bankruptcy. It’s often not something one can plan for. Even if you have insurance, the co-pays may be unexpected and more than you can handle. You can attempt to negotiate a reduced payment or set up payments, but if you find it a strain to make those payments, bankruptcy might be a viable alternative for you.

3.  Get Rid of Bill Collectors. 

This is a huge reason people file bankruptcy. They just can’t stand the calls and letters anymore. There are laws designed to protect consumers from unscrupulous collection agents, but those laws are ignored every day.

Even when the bill collectors follow the rules, you still may have too many accounts to manage successfully. Filing bankruptcy will stop the calls and letters.

4.  Stop a Foreclosure, Repossession,  Garnishment, Tax Levy, Eviction, Utility turn off or Lawsuit.

The same way that bankruptcy stops bill collectors from calling and demanding payment, bankruptcy can prevent a foreclosure of your house, repossession of your car or other collateral, a garnishment of your wages or bank account, a taxing authority like the IRS from taking your property, or a lawsuit being filed against you or continued.

It can also help postpone an eviction or prevent immediate turn off of certain utilities, like water, power or gas. The automatic stay usually goes into effect when the case is filed. Except for some limited circumstances, the automatic stay will prevent or stop all these collections actions from going forward.

5.  Include 2015 Taxes in a Chapter 13.

If you owe federal or state taxes for 2015, by waiting until January 1st to file, you should be able to include those taxes in a Chapter 13 case. Such recent taxes cannot be discharged in a Chapter 7 case, but their payment can be managed in a Chapter 13 case so that they are payable over a longer period of time than usual.

6.  Purge Holiday Debt.

It’s not pretty, but we know that some people do charge up debt to make their holidays merrier. You have to be careful with this one, however. If you charged debt intending to include it in a bankruptcy case, that could backfire on you. In addition, there are restrictions on the dischargeability of recent debts for cash advances or luxury purchases. You should consult a qualified bankruptcy attorney, who can help you determine the best timing for a bankruptcy after you’ve charged up debts.

7.  Manage Old Taxes.

Many old tax debts can be discharged in a bankruptcy case. The rules for determining which debts are dischargeable and which are not are tricky. Timing is often an issue because the dischargeability may be based on when and if returns were filed, when the IRS takes certain actions, and subsequent actions by the taxpayer. If you file your case too soon, before relevant dates and deadlines have passed, you could be forever barred from discharging that tax debt in a later bankruptcy case.

8.  Manage Student Loans.

Using bankruptcy to manage student loans can be one of the most helpful reasons to file. Student loans are notoriously difficult to discharge in a bankruptcy case, but filing bankruptcy can help in at least two ways. If you file a Chapter 7 case, you might eliminate other debt, like credit card or medical debt.

You can use those resources to pay student loans. In addition, you may be able to use a Chapter 13 case to force your lender to accept lower payments, at least for the short run.

9.  The Stress is Affecting Your Work or Home Life.

Of course financial issues can cause stress. It strains marriages. It causes excessive worry. It can lead to health issues. It can cause you to miss work or even lose your job. Check out these articles to learn more about managing your emotions during a bankruptcy case

Call Firebaugh & Andrews today for your free consultation 734-722-2999