An article in the Economist entitled, “A Fresh Start: New Evidence That Rules for Debtors are Too Tough,” reports on a study that finds that the trend toward fewer bankruptcies since 2005 is not necessarily a good thing. One of the positive effects of easier bankruptcy laws, found the authors of the study, Will Dobbie of Princeton and Jae Song of the SSA, include significantly increased income of the Debtors in the year after the bankruptcy was granted. Michelle White of UC-San Diego found that another positive effect was lower default rates on prime mortgages. The article concludes by noting that “worrying” figures were released by the Federal Reserve in March of 2015 that showed that consumer debt rose for the 41st straight month, and wonders whether repealing the reforms of 2005 would help or just increase profligacy. The article can be found here.
The Seventh Circuit Court of Appeals continues to apply the Brunner Test to those seeking discharge of student loans in bankruptcy. According to a recent report by Joe Forward in Wisbar News, in Tetzlaff v. Educational Credit Management Corp., the Court held that, “student loans are not dischargeable in bankruptcy unless a debtor shows an “undue hardship” – that is, he or she could not maintain a “minimal” standard of living if forced to repay the loans, “additional circumstances” determine that the debtor’s financial situation is likely to persist, and he or she made a “good faith” effort to repay the loan.” In the Tetzlaff case, it was reported, “Tetzlaff, who was unable to pass a bar exam, said depression, alcohol issues, and criminal convictions made it difficult to secure employment.” However, the Court of Appeals agreed with the Bankruptcy Court that, “Tetzlaff met the first requirement of the so-called Brunner test because he could not maintain a “minimal” standard of living. However, the court concluded that Tetzlaff did not meet the second two requirements.” The Court of Appeals, “noted that the “additional circumstances” prong requires courts to find a “certainty of hopelessness” in the debtor’s financial situation.” The bottom line is that the extreme difficulty in having student loans discharged in bankruptcy in the Seventh Circuit (the Seventh Circuit hears federal court cases from Wisconsin, Illinois and Indiana and sits in Chicago) remains, and for the vast majority of those seeking relief from burdensome student loans their best bet is to look into Income Based Repayment or Income Contingent Repayment plans.
In most cases the filing of a Chapter 13 bankruptcy case can stop a foreclosure, even after the Sheriff’s Sale. However, in Wisconsin, if it is not filed before the confirmation hearing, then it is likely too late. The filing of the Chapter 13 case will usually result in an automatic stay being issued by the Bankruptcy Court. The stay will stop all collection activities outside of the bankruptcy process, including the foreclosure. A Chapter 13 Plan is then filed with your case which must include the payment of your mortgage arrearages over the next 3 to 5 years. Interest and late fees stop accruing on the arrearage, but your payments through the Chapter 13 Plan get up to a 10% fee tacked on to it by the Chapter 13 trustee. The difficulty of a Chapter 13 Plan is that the Debtor needs to start making their regular payments on the mortgage and keep up to date on them while paying off the arrearage and other costs associated with the Chapter 13 case. This makes a Chapter 13 almost impossible for someone who had difficulty making their regular payments in the recent past, unless something has changed to either increase their income or decrease their expenses. Someone facing a foreclosure should consult an attorney to find out whether their particular situation could be helped by a Chapter 13 bankruptcy.
What if you make your Motion to Redeem Personal Property (usually for a vehicle) in your bankruptcy case, and you and your creditor can’t agree on the value of the vehicle? In that case you will have to have an evidentiary hearing, like a mini-trial, at which your attorney will submit into evidence, subject to the Federal Rules of Evidence, whatever it is that you are relying on to determine the value of the vehicle. This may include blue book values, repair estimates, affidavits, and perhaps even your own testimony as a witness at the hearing. After the hearing is concluded, the bankruptcy judge makes a decision as to the value of the vehicle. But, before the hearing actually takes place, you may be able to compromise with the creditor and resolve it that way.
“The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.,” according to “Bankruptcy Basics” published by the Administrative Office of the U.S. Courts. This is one of the many reasons why, although you are allowed to represent yourself in a bankruptcy, what is known as “pro se,” it is beneficial to hire an attorney who knows the ropes of bankruptcy cases and is aware of the pitfalls that must be avoided.