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 Let's start with a disclaimer: For all you know, I'm not an attorney. Or maybe I'm a terrible attorney. Or maybe I'm just a homeless guy who stands on street corners masturbating furiously and claiming to be Napoleon. I don't know, and you don't either. With that in mind, I want to be completely clear that I am not your attorney, nothing in this thread is (or should be construed as) legal advice, and there is absolutely no attorney-client relationship formed here. I will, as I have time and to the best of my ability, answer general questions that you might have about bankruptcy. You should not in any way, shape, or form rely on anything posted here. Always, always, always retain your own attorney and direct any questions to him or her before you take any action whatsoever.Make sense? Good.  Now let's get started. What is bankruptcy? In general, bankruptcy is an opportunity to discharge (i.e., get rid of) certain kinds of debts in order to get a "fresh start." It is a last resort, and it will basically nuke your credit, but it isn't the end of the world. It's certainly nothing to be ashamed of. Basically you file a document called a "petition" with the bankruptcy court, set forth your assets and liabilities, and, if all goes according to plan, you walk away more or less debt-free except for your secured debts. What kind of bankruptcy cases are there The most common individual bankruptcy is a chapter 7. This is a liquidation. In essence, you list all of your assets, claim certain assets as "exempt," sell the non-exempt ones and divide the money between your creditors on a pro rata basis, and then walk away with a discharge. If you don't have any non-exempt assets, then you don't have to sell anything. You just get a discharge. What is an "exempt" asset? This varies state by state (there are federal bankruptcy exemptions, but we won't get into that here because for most people it doesn't matter). You can google "[my state] bankruptcy exemptions" to see what yours are. For instance, in California, you can claim as exempt up to $2,300 worth of equity in a vehicle. (CCP § 704.010.) Meaning (assuming your other exemptions have all been used up), if you had a $5,000 car, you would theoretically sell it, keep $2,300, and give the rest to your creditors. So does bankruptcy mean I get a free house? Almost certainly not. Your mortgage is what is called a "secured" obligation, meaning that the lender has security (your house) it can exercise rights against in the event that you don't pay. (Compare this to an unsecured debt, such as credit card debt - all a credit card provider can generally do is sue you for non-payment.) If you are going through a chapter 7 bankruptcy and want to keep a piece of collateral securing a secured debt, you will need to "reaffirm" the obligation (i.e., agree to pay the debt even after your bankruptcy). Otherwise, you will likely have to surrender the collateral to the secured creditor. (Note that there are plenty of cases - such as where a mortgage is badly underwater - where surrendering the collateral probably makes an awful lot of sense.) Can everyone do Chapter 7 bankruptcies? No. In 2005, Congressional Republicans decided that bankruptcy debtors were living too high on the proverbial hog, so they passed a series of amendments to the Bankruptcy Code referred to as BAPCPA. A prospective chapter 7 debtor now must pass the "means test." In other words, they must prove that they are really poor enough to be in a chapter 7 case. This article has a pretty decent explanation of the means test and a link to some calculators: http://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-means-test-eligibility-29907.html Basically, if your household income is below the state median for a family of your size, you pass (meaning, you get to go into chapter 7). If it isn't, then you have to go through a whole series of calculations to determine your eligibility. This is one of those "go talk to an attorney" things I won't get into too much detail on. I think I have an idea... So you're telling me that I list my assets, sell off the non-exempt ones, give the proceeds to creditors, and then I get to walk away debt-free? Well what if I don't list all my assets? Or what if I give them to a family member to hang onto for a while...? Do not do this.  Here are a few reasons:(1.) You are not the first person to come up with this idea. Like, at all. There are entire branches of the federal government devoted in large part to catching people who do this. (2.) This is called bankruptcy fraud, and it's a federal crime. (3.) You can get your lawyer in really hot water too. Bankruptcy can offer a ton of relief for debtors, but you have to play fair with the system to get the benefits. Schedule all of your assets, notice all of your creditors, and don't gently caress around. Even if you don't end up being criminally prosecuted, you're almost certain to lose your discharge, meaning that your credit report shows a bankruptcy but you don't even get the benefit of the bankruptcy. What if I flunk the means test Then you are headed into a chapter 13 bankruptcy. Unlike a chapter 7 liquidation, which takes place all at once (so to speak), in a chapter 13 case, you create a plan to repay your creditors some percentage of what they are owed, and you make monthly plan payments to a bankruptcy trustee for (usually) 5 years. Think a lot harder before going into a chapter 13. Not only will you have higher legal fees, but you're also committing to devote all of your disposable income for five whole years to paying off your creditors. This is a massive commitment, and a lot of people can be out of debt in less than 5 years without even going into bankruptcy. Also, keep in mind that a high percentage of chapter 13 cases end up getting dismissed before the debtor receives a discharge, because of, for example, missed or late payments. Is chapter 13 good for anything Certain types of debtors do well in 13s. If you have a home with two mortgages on it, and the house is underwater to the extent that the second mortgage is totally usnecured, you can sometimes "strip it off" - meaning that you treat it like an unsecured debt, pay a few cents on the dollar over the life of the plan, and get a discharge that wipes it out but lets you keep the house. This may make sense for a select group of debtors who meet the following profile. Say, something like: Value of house: $200,000 Balance on 1st mortgage: $200,000 Balance on 2nd mortgage: $50,000 Any other questions on that front should probably be directed to your lawyer (and, as a reminder, I am not your lawyer, and maybe not a lawyer at all, etc.) I'm going to go back and add a few topics to the OP as I have time. Here are some I am inserting now: My chapter 13 bankruptcy attorney keeps talking about a "cramdown." Is she referring to a deviant sexual practice? If the internet has taught me anything, then yes, the cramdown is almost certainly a deviant sexual practice to at least someone. But in bankruptcy parlence, it is not (although it is still kinda sexy, at least for the debtor). A chapter 13 debtor has the option of "cramming down" certain secured debts and still keeping the collateral. This basically means re-writing the terms of the loan so that it is less favorable to the lender. This can be done on cars, investment properties, and other random pieces of personal property that might be the subject of a secured loan (furniture from rent-to-own stores, electronics purchased on installment plans, etc.) But most commonly, this is done with vehicles. Here's (a very brief and cursory overview of) how it works: Cars are depreciating assets. This means, of course, that as time goes on they become less and less valuable. The loans secured by those cars, on the other hand, continue to grow, especially because most bankruptcy debtors have "subprime" auto loans with very high rates, often from lenders with names like OWN UR OWN CAR CITY. Let's look at a hypothetical example: Debtor Dave owns a 2012 truck with 50,000 miles on it. He purchased the truck from Lender Corp. KBB.com indicates that the truck is worth about $17,000. But he still owes $26,000 on his loan, and interest on that loan continues to accrue at an annual rate of about 9%, because Debtor Dave's credit rating was bad when he bought the truck. Now he's a debtor in a chapter 13 bankruptcy trying to get a plan together. His attorney is going to file what's called a "Motion to Value Collateral." If this motion is granted, the bankruptcy court will determine that the value of the truck is $17,000, and instead of a secured claim for $26,000, Lender Corp will now have a secured claim for the value of the truck (i.e., 17 grand) and an unsecured claim for the balance (i.e., 9 grand). Remember, this is good for the debtor, because secured claims generally get paid, and unsecured claims generally get a few cents on the dollar and end up discharged following successful completion of the chapter 13 plan. Here's the other good thing that can happen: The debtor can reduce the interest rate on the loan at the plan confirmation stage. The formula for this reduced rate is governed by a U.S. Supreme Court case called Till v. SCS Credit Corp. In that case, the Supreme Court held that a fair rate for crammed down secured lenders in chapter 13 cases was the "prime rate" plus a "risk premium" of 1-3%, intended to compensate the lender for the risk of loaning to a bankrupt borrower. Right now, the prime rate is 3.5%, meaning that Debtor Dave's $26,000 secured obligation accruing interest at 9% is now a $17,000 secured obligation accruing at, say, 6.5%. Can I discharge student loans? For those curious, here is a brief summary of why student loan bankruptcy jurisprudence is extremely silly. The Bankruptcy Code allows - and has always allowed - discharge of student loans. The restriction, codified after a bit of media pearl-clutching around 1980 about lawyers discharging their loans and then making millions, is that a debtor seeking to discharge student loans must show "undue hardship." (11 USC 523(a)(8).) "Undue hardship" is not defined anywhere in the Code. The problem is that courts have subsequently defined it is "basically nothing should ever allow anyone to discharge loans." How did this happen? It goes back to a 2nd Circuit case from 1987 called Brunner. Nobody ever really examines the facts in Brunner, which is kinda weird, because they are glaring: A debtor who finished college and couldn't find a job in 5 months sought to discharge her loans in BK, claiming undue hardship. Oh, and by the way, under the then-operative version of section 523(a)(8), loans weren't presumptively non-dischargeable forever; rather they only required a showing of undue hardship for five years. After that, they were presumptively dischargeable. In other words, back when Brunner was decided, you only had to wait 5 years before you could discharge your student loans without undue hardship, so the undue hardship bar, as you might imagine, was set pretty darn high. Moreover, the debtor in that particular case only tried to pay off her loans (if at all) for a few months, so even a pretty liberal court would have written her off as a lemon. So as you might imagine, the court laid down a really tough standard, holding that "undue hardship" within the meaning of 523(a)(8) (i.e., of the sort which would allow for the discharge of student loans) meant that your life had to basically be impossible, and then some. In 1987, under those facts, Brunner made sense. But here's the catch: Brunner was decided under an old version of 523(a)(8). That statute has been substantially revised since then. What's changed? In 1987 you only needed to show undue hardship for 5 years, then you could discharge student loans. In 1998 the statute was changed to update that to 7 years. In 2005 it was changed to make student loans presumptively nondischargeable forever (absent a showing of undue hardship). So what makes no sense at all is why we use Brunner, a case with flukey facts which was decided under a long-since-substantially-changed version of 523(a)(8) to decide what constitutes 'undue hardship' now. But, in 11 circuits, that's what happens. The fact is that the actual statute that governs this issue is quite clear: Student loans can be discharged, right now, without any change to the Code. But in practice that can't happen because courts insist on applying a standard that should no longer be applied. What is chapter 11? Individuals who (i.) flunk the chapter 7 means test and (ii.) have debts above the chapter 13 debt limit must do a chapter 11 bankruptcy. The limit amounts change every three years. As of April 1, 2013, if your secured debts (mortgages and liens) add up to more that $1,149,525, or your unsecured debts add up to more than $383,175, Chapter 13 may not be available to you. Chapter 11, like chapter 13, involves making a plan and making payments over time before receiving a discharge. It is a bit more complex and provides a few more opportunities for creditors to be heard. As a rough estimate, you can bank on your legal fees being probably at least $10,000-15,000, if not a good deal more. Because individual chapter 11 debtors are generally pretty high-income, the cases tend to be complex enough that they are hard to sum up here. If you think this is you, go see an attorney. What about chapter 9? This is for municipalities only (like Detroit!) But one time a sovereign citizen crackpot filed an individual chapter 9 bankruptcy on behalf of the {Guy's Name} Municipal Corporation. The court was unimpressed, and I believe his case was dismissed. He was not being detained. If anyone else has questions, shoot. Boof Bonser fucked around with this message at 00:08 on Jan 27, 2016 |
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Jan 25, 2016 23:12
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Oh, I still remember the joy of when my co-worker openly admitted that his mother committed bankruptcy fraud on multiple occasions (at least once per bankruptcy). She apparently got away with it each time, so... 
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Jan 26, 2016 00:19
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Why do people generally end up in bankruptcy? Is there something that pops up more often than not? E: other than the obvious the took on too much credit. I mean more why do they do it, what are the behaviors behind it, out is there some outside general root cause.
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Jan 26, 2016 02:23
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This may be another thread but is anyone familiar with the recent phenomena of people suing their colleges for false advertising, saying they can't find any job much less the salaries they were promised in recruiting materials, and having a surprising amount of success with forgiving student loans? I just read an article on it and was wondering if anyone had direct experience with this.
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Jan 26, 2016 02:30
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spwrozek posted:Why do people generally end up in bankruptcy? Is there something that pops up more often than not? According to my junkie ex co-worker: "I spent all their money on poo poo*, and then I just went bankrupt and got off entirely. I had nothing that could be taken." * = Translation: Drugs. EDIT: The same person openly brags in a pleased, self-satisfied tone that he is a "parasite on the Australian state**", and I found out after I left the job that he used to constantly complain about how he wishes that he could have my parents, so he could "live off them for life**". ** = Before you go all D&D on me, they were his own words. Sic Semper Goon fucked around with this message at 02:51 on Jan 26, 2016 |
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Jan 26, 2016 02:44
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Sic Semper Goon posted:Oh, I still remember the joy of when my co-worker openly admitted that his mother committed bankruptcy fraud on multiple occasions (at least once per bankruptcy). Here's a fun story on this topic: A friend of mine clerked for a federal bankruptcy judge. One of his jobs was reviewing debtors' bankruptcy schedules. He noticed that one debtor lived in a relatively nice part of town, owned his home, and claimed to own no cars. This seemed odd, so he looked on Google Street View and saw the debtor had two late model Escalades sitting in his driveway. He phoned the US Trustee's office and they took it from there.
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Jan 26, 2016 04:37
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spwrozek posted:Why do people generally end up in bankruptcy? Is there something that pops up more often than not? Sometimes it's honestly just a good option. The best example here is medical debt. It can run into the seven figure range easily when people get into major health problems. Even $100,000 is going to be almost impossible to tackle when you have other bills and you're making, say, $35,000 a year. Credit card debt is another big one, but not as big as you might think. Another big one recently was second or third mortgage debt. People who took out big home equity loans c. 2004-2007 and blew the money on random crap are almost universally boned now. Most of them are either back to par or already filed BK, but that was a huge percentage of debtors in the 2008-2012 range.
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Jan 26, 2016 04:39
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For those curious, here is a brief summary of why student loan bankruptcy jurisprudence is extremely silly. The Bankruptcy Code allows - and has always allowed - discharge of student loans. The restriction, codified after a bit of media pearl-clutching around 1980 about lawyers discharging their loans and then making millions, is that a debtor seeking to discharge student loans must show "undue hardship." (11 USC 523(a)(8).) "Undue hardship" is not defined anywhere in the Code. The problem is that courts have subsequently defined it is "basically nothing should ever allow anyone to discharge loans." How did this happen? It goes back to a 2nd Circuit case from 1987 called Brunner. Nobody ever really examines the facts in Brunner, which is kinda weird, because they are glaring: A debtor who finished college and couldn't find a job in 5 months sought to discharge her loans in BK, claiming undue hardship. Oh, and by the way, under the then-operative version of section 523(a)(8), loans weren't presumptively non-dischargeable forever; rather they only required a showing of undue hardship for five years. After that, they were presumptively dischargeable. In other words, back when Brunner was decided, you only had to wait 5 years before you could discharge your student loans without undue hardship, so the undue hardship bar, as you might imagine, was set pretty darn high. Moreover, the debtor in that particular case only tried to pay off her loans (if at all) for a few months, so even a pretty liberal court would have written her off as a lemon. So as you might imagine, the court laid down a really tough standard, holding that "undue hardship" within the meaning of 523(a)(8) (i.e., of the sort which would allow for the discharge of student loans) meant that your life had to basically be impossible, and then some. In 1987, under those facts, Brunner made sense. But here's the catch: Brunner was decided under an old version of 523(a)(8). That statute has been substantially revised since then. What's changed? In 1987 you only needed to show undue hardship for 5 years, then you could discharge student loans. In 1998 the statute was changed to update that to 7 years. In 2005 it was changed to make student loans presumptively nondischargeable forever (absent a showing of undue hardship). So what makes no sense at all is why we use Brunner, a case with flukey facts which was decided under a long-since-substantially-changed version of 523(a)(8) to decide what constitutes 'undue hardship' now. But, in 11 circuits, that's what happens. The fact is that the actual statute that governs this issue is quite clear: Student loans can be discharged, right now, without any change to the Code. But in practice that can't happen because courts insist on applying a standard that should no longer be applied.
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Jan 26, 2016 04:43
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Boof Bonser posted:Sometimes it's honestly just a good option. The best example here is medical debt. It can run into the seven figure range easily when people get into major health problems.
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Jan 26, 2016 07:39
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moana posted:This was it for my husband. Medical bills from being hit by a drunk driver and a combination of getting hosed in court/not dealing with the insurance companies correctly. Landed him deep in medical debt that he couldn't pay off with a minimum wage job. I told him that he needed to chapter 7 before we got married and helped him through the process. Thanks for this thread, by the way, I hope it can be a good reference for people who need it. No prob, hope it can help some people. Bankruptcy is certainly not a good option for everyone but (contrary to the assertions of certain Southern radio personalities who encourage everyone to do "baby steps" regardless of their income and debt load) it can be absolutely lifesaving for some.
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Jan 26, 2016 15:19
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Forgive my ignorance, but once you've decided that a chapter 7 makes sense for a client, what's to stop them from going on a shopping spree with unsecured debt? On one hand the judge could say you did a dumb thing and that debt won't be discharged, but if that analysis happened for every case there would be problems since I imagine a lot of bankruptcies involve dumb decisions.
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Jan 26, 2016 16:00
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Boof, you write really well. You're talking about case law and it's actually entertaining. Thanks!
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Jan 26, 2016 16:16
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antiga posted:Forgive my ignorance, but once you've decided that a chapter 7 makes sense for a client, what's to stop them from going on a shopping spree with unsecured debt? On one hand the judge could say you did a dumb thing and that debt won't be discharged, but if that analysis happened for every case there would be problems since I imagine a lot of bankruptcies involve dumb decisions. This is a good question. In theory, someone who has resolved to file a chapter 7 bankruptcy could run up $100,000 in credit card debt, buy all kinds of nice things, keep those things, and then discharge the debt. There are both legal and practical reasons why this isn't actually much of a big concern. The legal reasons: Section 707 of the Bankruptcy Code provides as follows: quote:After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter. What this means is that the U.S. Trustee (an arm of the Department of Justice designed to be a watchdog over the bankruptcy system), the bankruptcy trustee (a court appointee who oversees each chapter 7 bankruptcy case), or "a real party in interest" (here, the credit card company or another creditor) can file a motion to have a bankruptcy case dismissed (or, if the debtor agrees in order to avoid dismissal, converted to a chapter 13, which would result in much more of the unsecured debt being repaid in all likelihood) if (1) the debtor's debts are "primarily consumer debts" (credit card debt would almost surely fit the bill here) and (2) a showing can be made that the bankruptcy filing is abusive. Under the fact pattern you laid out (a huge consumer spending binge on credit cards right before filing), the debtor would be a good candidate for dismissal. Remember that dismissal of a filed bankruptcy case is basically a debtor's worst nightmare, because they now (A) have a bankruptcy filing on their credit report and (B) don't actually get any debt relief. Debtors (and their attorneys, if their attorneys are any good) will do absolutely anything to avoid this outcome. The practical reasons: Recall that chapter 7 bankruptcy is, since 2005, means-tested, meaning that the lion's share of chapter 7 debtors have incomes below their state medians. (I can do a whole other post on why this is silly, and maybe I will, but for now that's all you need to know). And most of them have pretty shoddy credit histories, meaning that it's hard for them to get a lot of credit. It's not uncommon to see debtors with credit card balances in the five-figure range, but it's tough for them to rack up really gargantuan totals because their credit limits tend to be relatively low. A lot of their credit card debt tends to be accrued interest, late fees, collection fees, legal fees (if they have been sued on credit card debt), and so forth. So the biggest non-legal reason that most chapter 7 debtors can't go into huge amounts of consumer debt right before they file is that their creditors probably won't let them. Keep in mind that if someone has an Amex Black card, they aren't likely to be eligible for a chapter 7. My personal thoughts: Not that anyone asked, but my thinking is that credit card companies accept the risk of bankruptcy when they issue unsecured lines of credit to low-income people. Not only do they assume the risk, but they also hire a lot of pretty smart people to price that risk into their products. I don't know what the interest rate is on my credit card because I pay the balance down pretty religiously, but I think it's something outlandish like 17%. I certainly don't condone ripping off credit card companies or committing any other sort of fraud, but I also don't get too worked up about it when they lose principal from time to time, since their business model more than accounts for this possibility.
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Jan 26, 2016 17:29
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Nocheez posted:Boof, you write really well. You're talking about case law and it's actually entertaining. Thanks! Thanks! I hope people get some use/enjoyment out of this. Bankruptcy is not a terribly well-understood topic and I (for whatever odd reason) find it kind of interesting. I'll keep answering questions as work allows.
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Jan 26, 2016 17:31
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I'm going to go back and add a few topics to the OP as I have time. Here are some I am inserting now: My chapter 13 bankruptcy attorney keeps talking about a "cramdown." Is she referring to a deviant sexual practice? If the internet has taught me anything, then yes, the cramdown is almost certainly a deviant sexual practice to at least someone. But in bankruptcy parlence, it is not (although it is still kinda sexy, at least for the debtor). A chapter 13 debtor has the option of "cramming down" certain secured debts and still keeping the collateral. This basically means re-writing the terms of the loan so that it is less favorable to the lender. This can be done on cars, investment properties, and other random pieces of personal property that might be the subject of a secured loan (furniture from rent-to-own stores, electronics purchased on installment plans, etc.) But most commonly, this is done with vehicles. Here's (a very brief and cursory overview of) how it works: Cars are depreciating assets. This means, of course, that as time goes on they become less and less valuable. The loans secured by those cars, on the other hand, continue to grow, especially because most bankruptcy debtors have "subprime" auto loans with very high rates, often from lenders with names like OWN UR OWN CAR CITY. Let's look at a hypothetical example: Debtor Dave owns a 2012 truck with 50,000 miles on it. He purchased the truck from Lender Corp. KBB.com indicates that the truck is worth about $17,000. But he still owes $26,000 on his loan, and interest on that loan continues to accrue at an annual rate of about 9%, because Debtor Dave's credit rating was bad when he bought the truck. Now he's a debtor in a chapter 13 bankruptcy trying to get a plan together. His attorney is going to file what's called a "Motion to Value Collateral." If this motion is granted, the bankruptcy court will determine that the value of the truck is $17,000, and instead of a secured claim for $26,000, Lender Corp will now have a secured claim for the value of the truck (i.e., 17 grand) and an unsecured claim for the balance (i.e., 9 grand). Remember, this is good for the debtor, because secured claims generally get paid, and unsecured claims generally get a few cents on the dollar and end up discharged following successful completion of the chapter 13 plan. Here's the other good thing that can happen: The debtor can reduce the interest rate on the loan at the plan confirmation stage. The formula for this reduced rate is governed by a U.S. Supreme Court case called Till v. SCS Credit Corp. In that case, the Supreme Court held that a fair rate for crammed down secured lenders in chapter 13 cases was the "prime rate" plus a "risk premium" of 1-3%, intended to compensate the lender for the risk of loaning to a bankrupt borrower. Right now, the prime rate is 3.5%, meaning that Debtor Dave's $26,000 secured obligation accruing interest at 9% is now a $17,000 secured obligation accruing at, say, 6.5%. Boof Bonser fucked around with this message at 00:08 on Jan 27, 2016 |
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Jan 26, 2016 21:01
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This should probably have a "law" tag but apparently it's too late to change that.
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Jan 27, 2016 00:14
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Boof Bonser posted:This should probably have a "law" tag but apparently it's too late to change that. No it's not 
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Jan 27, 2016 04:40
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slap me silly posted:No it's not  I'm liking this subforum more and more.
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Jan 27, 2016 04:49
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Awesome thread, Boof! Can you comment on the socio-economic status of the typical filee in your experience? Are any races/classes/professions/religions over- or under-represented relative to the population at large? Has the increase in access to health insurance (thanks Obama!) decreased the number of filings?
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Jan 27, 2016 05:35
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slap me silly posted:No it's not Thanks!
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Jan 27, 2016 06:03
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swenblack posted:Awesome thread, Boof! Can you comment on the socio-economic status of the typical filee in your experience? Are any races/classes/professions/religions over- or under-represented relative to the population at large? Has the increase in access to health insurance (thanks Obama!) decreased the number of filings? In terms of overall trends, this graph does a pretty good job of summing things up: http://www.creditslips.org/.a/6a00d8341cf9b753ef019b00c05b6e970c-400wi Bankruptcy is a bit of a trailing indicator, meaning that filings peak a bit after the economy really hits the toilet. This makes sense, when you think about it: People get in trouble financially when the market crashes (or the housing market crashes, or whenever some other catastrophic macroeconomic event happens), but it often takes a while after the job gets lost (or the house goes underwater, or what have you) before the savings account runs dry and people are forced to give up. Bankruptcy work peaked around 2010, and stayed extremely busy through 2012. After that, it got slow pretty abruptly, and things are still very slow in terms of individual debtor work. It's actually a bit perverse: If you go to conferences for bankruptcy attorneys, you hear a lot of talk about how the economy is good now but things are sure to "get better" soon. Ultimately though, it takes care of itself from the legal services end of things. Post-2008 there was a boom in bankruptcies, and a lot of unscrupulous attorneys got into the practice with no knowledge of the law or desire to really help their clients. (An aside: You can usually tell a scam artist attorney because they offer "foreclosure defense" services that consist of filing frivolous lawsuits against the lender, often involving the utterly cockamamie theory that the mortgage was securitized and therefore nobody "holds" the note and, by extension, nobody has standing to seek foreclosure. As a general rule, the law does not give you a free house in exchange for saying some magic words in a complaint.) The bankruptcy attorneys who take their craft seriously and put their clients first are still in the game, and still doing fine for the most part. As far as the impact of Obamacare on filings, I think it's too early to tell, but my guess is that it will cut down on the number of filings somewhat. The extent to which medical debt causes bankruptcy is a hotly debated topic. A few years ago, a study made the rounds in the popular news press claiming that medical debt is the #1 cause of individual bankruptcies. It turns out the methodology for that study was a little bit suspect: Basically they looked at a whole bunch of debtors' bankruptcy schedules and basically concluded that anyone with medical debt was declaring bankruptcy because of that debt. This of course doesn't make a lot of sense, because if a debtor has $5,000 in medical and $50,000 in credit cards, it's probably not the medical that's "causing" the bankruptcy. Nevertheless, from my own experience I can say that medical debt is certainly one of the leading factors. If more people are getting their medical care covered by insurers, it would stand to reason that less of them are being rendered insolvent by the bills. As far as socioeconomic status goes, it really breaks down by chapter. Your average chapter 7 debtor is low-income and low-education. A lot of them are disabled, either physically or because of depression. Chapter 13 debtors tend to be white suburban types who want to keep the family home (though of course that's an absurd over-generalization). Individual chapter 11 debtors in my experience are overwhelmingly doctors and dentists who got burned in some kind of real estate investment.
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Jan 27, 2016 06:21
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Boof Bonser posted:My personal thoughts: People being able to default is also necessary if lenders are going to have any incentive to do their jobs. If a creditor could guarantee being paid regardless of how badly things went for the debtor, predatory lending would be even better business than it is now.
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Jan 27, 2016 06:22
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Jeb Bush 2012 posted:People being able to default is also necessary if lenders are going to have any incentive to do their jobs. If a creditor could guarantee being paid regardless of how badly things went for the debtor, predatory lending would be even better business than it is now. Exactly. We tried debtors prisons, and it was kind of a lousy system, so now we have bankruptcy. At the end of the day debt settlement is a negotiation, and the only card the debtor can really play is the threat of default.
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Jan 27, 2016 06:26
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When is it better to just let things pass their statutes of limitations and age off the credit report instead of filing bankruptcy?
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Jan 28, 2016 18:49
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Sub Rosa posted:When is it better to just let things pass their statutes of limitations and age off the credit report instead of filing bankruptcy? This depends on a number of factors, I suppose, but the biggest one is whether the creditor is going to let you do that. In my experience, it is only the small debts (less than, say, $3,000) where the creditor will just turn things over to a collection agency and let the debt marinate until the statute of limitations runs. Credit card companies tend to be pretty good about getting a judgment before the statute runs. Hypothetically, if you have a huge debt and the creditor sleeps on it until it becomes uncollectible, then there really isn't any reason to file bankruptcy. But more often than not a creditor will force the issue by suing you, initiating foreclosure proceedings, etc.
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Jan 28, 2016 20:59
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Pretty much the answer I expected. I had a credit card that was up to about $13k after fees and etc and they never got a judgement. Fell off my credit report about six months ago, finally. I guess I'm lucky, then, but the years of being hounded by scum debt collectors didn't make me feel that way. I considered Chapter 7 at one point, but besides that credit card pretty much all my debt was defaulted student loans.
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Jan 29, 2016 07:39
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Sub Rosa posted:Pretty much the answer I expected. It seems like you got lucky and made a smart move. Bankruptcy wouldn't have done anything about those student loans (in all likelihood, though this is not an absolute rule) and the credit card took care of itself. From the sounds of it tacking the income issue would be more useful to you than debt relief, so I don't know if I can me much help, but best of luck in getting it sorted out.
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Jan 29, 2016 07:50
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Reasons Dave Ramsey is Terrible: I have to confess that I actually listen to his podcast pretty regularly, partly because against all odds he's kinda entertaining, and partly in that rage-inducing way that causes my fiancé to watch horrible reality shows where shrews get hammered and scream at one another over bullshit. I get that his shtick is people repaying their debts being the end-all and be-all and that it's kind of a theological thing for him, but his views on bankruptcy are just bizarre. Here are some reasons why: 1.) The main drawback to bankruptcy is that having a bankruptcy on your credit report makes it very, very hard to borrow money for a while, at least at a non-usurious rate of interest. But Dave Ramsey's number one piece of advice to his devotees is to never borrow money again. If we assume for the sake of argument that that is practical, doable advice, then why should it matter if someone has a bankruptcy on their credit report? If you never borrow money again, then a bankruptcy is basically all upside (minus the legal fees and possibly the fact that it can make renting an apartment a hassle if your income is low). 2.) His rationale for telling people who really ought to be in bankruptcy to avoid bankruptcy is that you have to learn how to manage money, and the best way to do this is to spend a long time budgeting, exercising fiscal discipline, and repaying debts. The first two, yes. The last one, not necessarily. Let's not be naive: There are serial bankruptcy filers out there who repeatedly get themselves into debt holes and BK their way out of the problem every so many years. I have seen plenty of them. But they are the minority. Most people get a fresh start that they really needed and move on with their lives. They're not bad or lazy people, for the most part. I completely agree that people in financial trouble would do well to make budgets, learn good habits, and scrupulously avoid incurring more consumer debt. But there is no reason why they have to spend 5-10 years as slaves to consumer creditors first. Bankruptcy and budgeting are not mutually exclusive; debtors can (and should) use the fresh start that bankruptcy provides as a jumping-off point to a new life of sound personal financial management. 3.) This doesn't really have anything to do with bankruptcy, but he just gives lousy advice. Interest rates are weirdly historically low right now. People call his show who have mortgages with interest rates in the 3-5% range and he tells them to pay those off instead of investing in securities that are substantially likely to earn a rate of return in the 7-9% range (over time). And that isn't even accounting for the fact that inflation (if it ever starts to really happen again) continually works its magic on debts while inflating the value of the real property collateral securing those debts. The only time someone with a 3% mortgage should be making extra payments is if they are trying to get to 20% equity so they can stop paying PMI. Otherwise extra money should be invested more profitably.
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Jan 29, 2016 08:07
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Dave Ramsey  He's got some good basic credit card and budgeting advice and other than that he's a flaming idiot. I never thought about his bankruptcy opinions before but I'm not surprised to hear they're dumb.
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Jan 29, 2016 15:12
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Always got the feeling from Dave they you took the debt and you should pay it back because that's the right thing to do. Also his crazy views about the average expected annual return of the market make his advice to pay a mortgage before investing even more unbelievable. Could you do an idiot's guide to foreclosure vs bankruptcy? I've imagined them being basically equal in terms of credit damage, but I've known a few people who got foreclosed on while also holding awful cc debt that didn't file for bankruptcy.
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Jan 29, 2016 15:47
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antiga posted:Always got the feeling from Dave they you took the debt and you should pay it back because that's the right thing to do. Unfortunately I'm really not qualified to offer opinions about how best to manage a credit report but both foreclosure and BK are going to look pretty bad on there. I can say that in non-deficiency states, allowing the bank to foreclose makes a lot of sense if you are badly underwater and can't work out a short sale where they forgive the balance of the loan. (A deficiency state is a state that allows a deficiency judgment, meaning that if the bank forecloses on you and takes your house valued at $100,000, but the balance of your mortgage is $200,000, they can sue you to collect the remaining $100,000.) Re the bolded, this is totally accurate. He routinely tells people that "good growth stock mutual funds" are almost sure to earn 10-12% returns, net of the high fees he advises people to pay for active fund management, which is nuts. Average investors should just be buying low-cost index funds and other low-fee products, but of course then Dave wouldn't be able to get a kickback from his "endorsed local providers" who sell mutual funds with active management.
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Jan 29, 2016 17:41
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I used to run in evangelical circles that treat Dave Ramsey's word as holy writ, and in my experience he seems to help people go from F situations to maybe C- or so. If someone listens to him and makes a budget for the first time and cuts back on spending, then there are benefits, but anything past that he is steering them towards for profit financial companies. (And making himself very rich in the process). He, uh, also seems to have problems with employees gossiping about him: quote:According to interviews with nearly two dozen current and former employees of his Nashville-based Lampo Group, Ramsey has engaged in what they describe as an increasingly paranoid campaign to identify and silence several critics—mostly former employees—who have appeared on Facebook and Twitter. Bizarre episodes allegedly involving online spying, gag orders, random firings, and offers of large cash bounties for information have created a climate of fear inside the Lampo headquarters, intensifying a discomfort many employees have felt the past several years with Ramsey’s management. quote:“As a boss, Dave Ramsey was a bully,” said one former employee, who was a member of a secret Facebook group of about 100 former Lampo employees that Ramsey managed to infiltrate without their knowledge last year. “Most of us left Lampo years ago and yet he still haunts us, lurking over our shoulders like he’s the drat Godfather. And many of us are scared of him, unsure of how far he’d go to silence us.” quote:The public criticism enraged Ramsey, who, according to one current employee, went on a “warpath” to expose the Twitter critics. During an all-staff meeting on May 7 that was described by several current employees, Ramsey offered thousands of dollars in bounties in exchange for the identities of the tweeters. (Employees’ accounts differed on the dollar figure, but ranged from $5,000 to $20,000). quote:The seeming paranoia of Ramsey’s outburst in the May 12 staff meeting startled some Lampo employees, but many said they had come to expect explosive behavior from the boss. “This is the guy who once pulled a loaded pistol out of a gift bag to teach us a lesson about gossip,” said one former employee. “It was bizarre, even for Ramsey.” (Ramsey has tweeted photos of his gun collection, which includes semi-automatic rifles.) http://www.thedailybeast.com/articles/2014/05/29/spies-cash-and-fear-inside-christian-money-guru-dave-ramsey-s-social-media-witch-hunt.html
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Jan 29, 2016 19:45
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Pryor on Fire posted:This may be another thread but is anyone familiar with the recent phenomena of people suing their colleges for false advertising, saying they can't find any job much less the salaries they were promised in recruiting materials, and having a surprising amount of success with forgiving student loans? I just read an article on it and was wondering if anyone had direct experience with this. It pretty much only works if you went to a for-profit college but due to the scummy poo poo they pull and the fact they put stuff in writing like "90% of our grads have a job in there field after college" they can sue for what basically amounts to false advertising.
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Jan 29, 2016 19:53
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sbaldrick posted:It pretty much only works if you went to a for-profit college but due to the scummy poo poo they pull and the fact they put stuff in writing like "90% of our grads have a job in there field after college" they can sue for what basically amounts to false advertising. Law schools should be pistol-whipped for the employment data that they use to induce prospective students to borrow $200,000+. When they say "80% of our graduates are employed within 6 months making an average of $75,000 a year" what they really mean is "80% of the graduates who chose to respond to our employment survey have any sort of job whatsoever (whether or not that job involves practicing law), and because the legal field has a bimodal salary distribution, a few of them are making $160,000 a year while the majority are making around $50,000 which, neatly enough, makes the average about $75,000."
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Jan 29, 2016 20:10
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Mojo Threepwood posted:I used to run in evangelical circles that treat Dave Ramsey's word as holy writ, and in my experience he seems to help people go from F situations to maybe C- or so. If someone listens to him and makes a budget for the first time and cuts back on spending, then there are benefits, but anything past that he is steering them towards for profit financial companies. (And making himself very rich in the process). This is borderline Scientology stuff. The biggest scam is the "endorsed local provider" network. He always says that it's easy to beat the market and all you have to do is pick a fund that has outperformed the market for the past few years (never mind that these funds are, per a recent WSJ study, actually less likely than a randomly selected comparable to outperform the market for the subsequent 5-year period, and never mind that if outperforming the S&P 500 was "easy" everyone would do it.) And so his (generally financially illiterate) listeners end up paying brokerage fees to a Dave Ramsey "Endorsed Local Provider" (who then pays referral fees back to Dave Ramsey) instead of just getting a low-cost Vanguard index fund or something like that. There used to be an amazing article called "The Tao of Alpha" but I can't seem to find it online anymore. But it did a neat job of deconstructing the "Just do beat the market!" flame.
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Jan 29, 2016 20:14
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Also I'm now getting very far afield of the topic of bankruptcy, but the other reason that Dave Ramsey sucks is that he has an obsessive fixation on "useful" college degrees. He never asks listeners where they are going to school, only what they're studying. I don't dispute that an engineering degree makes it easier to get a job, but a literature degree from Harvard is going to be a lot more helpful than an HVAC certificate from a for-profit college.
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Jan 29, 2016 20:23
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Boof Bonser posted:Also I'm now getting very far afield of the topic of bankruptcy, but the other reason that Dave Ramsey sucks is that he has an obsessive fixation on "useful" college degrees. He never asks listeners where they are going to school, only what they're studying. I don't dispute that an engineering degree makes it easier to get a job, but a literature degree from Harvard is going to be a lot more helpful than an HVAC certificate from a for-profit college. A lot of goons (and people in general, and presidential candidates) have that same fixation, actual salary evidence be damned.
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Jan 29, 2016 20:49
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Jeb Bush 2012 posted:A lot of goons (and people in general, and presidential candidates) have that same fixation, actual salary evidence be damned. Yeah it's pretty bizarre, if nothing else but because it ignores the fact that people have different skill sets. I like to read and I write well, so I was a pretty successful history major. I would have been a D student in computer science.
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Jan 29, 2016 22:23
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Boof Bonser posted:Yeah it's pretty bizarre, if nothing else but because it ignores the fact that people have different skill sets. I like to read and I write well, so I was a pretty successful history major. I would have been a D student in computer science. “Everybody is a genius. But if you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid.”
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Jan 29, 2016 22:25
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Boof Bonser posted:Also I'm now getting very far afield of the topic of bankruptcy, but the other reason that Dave Ramsey sucks is that he has an obsessive fixation on "useful" college degrees. He never asks listeners where they are going to school, only what they're studying. I don't dispute that an engineering degree makes it easier to get a job, but a literature degree from Harvard is going to be a lot more helpful than an HVAC certificate from a for-profit college. Dave Ramsey is the remedial English teacher of the financial world. He's not teaching the honors course. His job is to turn failing students into not-failing students. And he's good at that. But if you're aiming for higher than a C, you should look elsewhere. Anyway, my FIL is a bankruptcy trustee. He says that business is very slow right now, and that the recent law changes have deterred a lot of perspective bankruptors. Is that your experience, Boof?
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Feb 13, 2016 21:27
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