Source: http://www.blog.schallerlawfirm.com/
Timestamp: 2019-04-19 12:32:25+00:00

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In the bankruptcy case of Ellman v. Baer, 467 B.R. 635 (D.Md. 2012), the court addressed whether money from a tax refund should be exempt from inclusion in the bankruptcy estate (and thus kept under the debtor's control and out of the hands of the trustee) because such money was required for the debtor's "basic living expenses." Ultimately, the court ruled in favor of the bankruptcy trustee, holding that the debtor's tax refund, based on his pre-petition income, was property of the debtor's bankruptcy estate, and therefore subject to seizure by the bankruptcy trustee, despite debtor's claim that he used the refund for basic living expenses.
The debtor in Ellman v. Baer was a special education teacher in the Baltimore County Public Schools. Debtor filed a Chapter 7 bankruptcy petition in December 2010, at which time his monthly expenses exceeded his monthly income by approximately $1,200. Debtor received worker's compensation benefits from February through June in 2011, due to an injury sustained while he broke up a fight at work. Although debtor applied for disability retirement due to his injury, which deprived him the use of his left arm, he had no other source of income as of the month of September. Debtor received a federal income tax return of $15,827 in February 2011 for the year 2010, which he planned to use to support himself during the summer months when he does not work. The tax refund was the subject of this dispute.
The bankruptcy trustee contended, and the bankruptcy court agreed that the refund (minus exemptions available to debtor) was property of debtor's bankruptcy estate and therefore subject to seizure by the trustee under 11 U.S.C. § 541(a).
The debtor on the other hand wanted the court to look to the use to which a debtor puts a tax refund, rather than simply the fact that the money comes in the form of a tax refund. Debtor likened his case to Lines v. Frederick, 400 U.S. 18 (1970), which held that vacation pay was not part of the bankruptcy estate. So the debtor argued that his tax refund is required for his basic living expenses and was therefore out of the creditor's reach. Debtor asserted that he regularly used his tax refunds to pay his family's living expenses during the two and half months when he is not paid. Thus, debtor's use of the tax refunds makes such refunds comparable to the vacation pay in Lines that was excluded from the Line's debtor's bankruptcy estate.
The bankruptcy court began its analysis by citing Kokoszka v. Belford, 417 U.S. 374 (1974) in which the Supreme Court held that a debtor's tax refund was "property" within the meaning of § 70(a)(5) of the (now former) Bankruptcy Code. According to the Kokoszka Court, the purpose of § 70(a)(5) was "to secure for creditors everything of value the debtor may possess in alienable or leviable form when he files his petition." Next, the bankruptcy court considered debtor's argument but was not able to find a case in the Fourth Circuit or any other Circuit that supported the debtor's argument that a tax refund based on a debtor's pre-petition income is not to be property of the bankruptcy estate, UNLESS the debtor had irrevocably applied the tax refund to prepayment of future taxes.
The court conceded that the debtor was correct to point out that the one purpose of the Bankruptcy Code is to provide an individual with the opportunity to make a fresh start financially. However, for public policy reasons, the court determined that there are other important purposes of the Code, such as the gathering and distributing a debtor's assets to his creditors.
This holding seems to suggest that there are ways to exempt tax refunds from inclusion in a bankruptcy estate. For an analysis discussing these exemptions and strategies about how to obtain these exemptions, please eagerly await future blog posts!
By: Austin J. Pollak (Austin's bio) . Austin is a summer associate at the Schaller Law Firm where he concentrates in consumer bankruptcy law.
NOTE: Please remember that all information on this blog is for general informational purposes only and should not be deemed legal advice. Please read the required disclaimer.
Is a husband responsible for the bad acts of his wife, including the wife's theft of more than $300,000 from an ex-employer. Read below to find out.
Student Loan Debtors Can Seek Student Loan Discharge Determination Prior to Completion of Chapter 13 Plan Payments.
For information about Chapter 13 bankruptcy Click Here You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you. NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer. I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
Student loan dischargeability is a hot issue. A court recently addressed the issue of whether the circumstances causing "undue hardship" must occur prior to the underlying chapter 7 discharge.
In Zygarewicz v. Educational Credit Management, 423 B.R. 909 (Bankr. E.D. Cal. 2010), a chapter 7 debtor filed bankruptcy and received a discharge of all dischargeable debts. However, one of the debts not discharged was debtor’s student loan debt. The student loan debt was not discharged because debtor could not demonstrate that repayment of the student loans would cause an undue hardship.
Two years later debtor’s situation changed for the worst. Debtor suffered a severe injury in a vehicle accident. Debtor then believed debtor would be able to prove that repayment of the student loans would cause an undue hardship. Debtor reopened the bankruptcy case and filed an adversary proceeding against the student loan creditor seeking a ruling that the student loan debt is discharged.
The student loan creditor objected to the discharge because the event causing debtor’s hardship arose years AFTER the discharge order had been entered. The bankruptcy court agreed and entered judgment in favor of the creditor. The court concluded that the circumstances causing a chapter 7 debtor’s financial hardship must arise PRIOR to the entry of the discharge order. Here, the court believed that debtor’s circumstances could not form the basis of a determination that repayment of the student loan would be an undue hardship since the circumstances causing debtor’s hardship (the vehicle accident) arose after the entry of the discharge.
Debtor should consider refiling a new bankruptcy case and attacking the student loan debt within the new bankruptcy case. Contact me if you have questions.
Car buyers beware! The Seventh Circuit Court of Appeals ruled recently that car buyers who file Chapter 13 bankruptcy cannot cram-down the negative equity financed when trading-in an older vehicle for a different car if the transaction occurred within 910 days of the bankruptcy filing date. That negative equity becomes part of the purchase money security interest and is subject to protection.
Howard v. AmeriCredit Financial Services, No.09-3181 (in re Aubrey Howard), (7th Cir. 3/1/10). In Howard, the Seventh Circuit addressed the issue of whether a Chapter 13 bankruptcy debtor can exercise the “cramdown” provisions of the Bankruptcy Code relative to the “negative equity” on a vehicle trade-in. Negative equity is the difference between the amount owed on a trade-in vehicle and the actual value of said vehicle. Vehicle owners frequently do not have sufficient cash reserves to satisfy the negative equity. So, dealers frequently add the negative equity to the cost of a new vehicle and provide financing for both.
Debtor did just that; signing an agreement to pay the negative equity and the cost of the new vehicle and provided the new vehicle as security for that obligation. Debtor later filed bankruptcy. In the Chapter 13, Debtor did not dispute that the cost of the new vehicle could not be crammed-down to the value of the new vehicle because said vehicle was purchased with 910 days of the bankruptcy filing date. However, debtor asserted that the negative equity portion of the new loan could be crammed-down because it was not a part of the purchase money security interest.
The Seventh Circuit disagreed with debtor and affirmed the bankruptcy court ruling. The Court held that negative equity can be part of a purchase money security interest and if thus secured is not subject to the cramdown power of the bankruptcy judge in a Chapter 13 bankruptcy.
In the case of In re Brady, 419 B.R. 479 (Bankr. M.D. FL. 2009), the court addressed a hotly debated issue as a result of the US Trustee filing a motion to dismiss the Chapter 7 case on “abuse” grounds. The trustee sought dismissal because the debtor took a means test deduction for secured payments relating to debtor’s principal residence that debtor intends to surrender postpetition.
The Court rejected the US Trustee’s position and allowed the debtor to take the deduction. The Court found that under the “snapshot” approach to interpreting the Means Test, a Chapter 7 debtor may deduct from current monthly income long-term secured debt payments that are allowed on the petition date, even If the debtor intends to surrender the property securing the debt.
In In re Russell & Joy Smith, 20 CBN 246 (Bankr. C.D.CA 2009), the court dismissed the debtors’ Chapter 13 case because debtors exceeded the unsecured debt limit after adding the junior mortgage lien balance to the other unsecured debt balance.
The Smith case presented the court with the issue of how secured residential mortgage debt should be treated in determining whether debtors qualify for Chapter 13 relief. The court found that wholly unsecured junior mortgages are counted as unsecured debt and partially secured senior mortgages are counted as secured debt for Section 109(e) purposes. The court based its determination on eligibility on the amount of debt and property values listed in debtors’ schedules --- because there were no allegations that the debtors acted in bad faith.
Debtors had wholly unsecured junior mortgages that, if treated as unsecured debt, would make them ineligible for Chapter 13 relief. The debtors argued that the junior mortgages were unliquidated because it was not yet known whether the debt would be determined to be secured. The court disagreed, ruling that the debts were liquidated because the court could determine whether they were secured at a simple hearing. In support, the Smith court cited Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. 2001), established how to treat wholly unsecured junior mortgages. In Scovis, the 9th Circuit held that completely undersecured liens must be counted as unsecured debt for purposes of Section 109(e).
The Smith court, however, found that the Scovis case did not apply to partially secured senior mortgages because Section 1322(b)(2) prohibits the modification of these mortgages. Thus, while the bankruptcy court may still value a debtor’s principal residence, the Code does not allow the court to modify an undersecured lien secured by debtors’ residence.
In sum, the court found that debt secured by a wholly unsecured junior trust deed must be counted as unsecured debt for Section 109(e) eligibility purposes where a debtor’s schedules show the senior deeds of trust exceed said debtor’s home value. However, trust deed debt will be counted as secured debt for Section 109(e) purposes where a trust deed is partially secured on a debtor’s primary residence.
A Pennsylvania bankruptcy court held that it did not have the discretion to ignore a debtor’s valid lien stripping action by exercising the court’s general equitable powers. In Korbe v. Department of Housing and Urban Development (In re Korbe), 18 CBN 741 (Bankr. W.D.Pa 2008), HUD held a third mortgage on debtor's homestead. Given that there was no equity in the debtor's residence above the first mortgage, the debtor sought an order stripping off HUD's lien.
The court said that there was no unique facts that would allow HUD to prevent the loss of its junior lien. The fact that the lien was secured by debtor's home did not change the outcome according to the court because Section 1322(b)(2)'s anti-modification provision does not apply to wholly unsecured junior mortgages.
HUD argued that the court had discretion to exercise its equitable powers as to the avoidance of HUD's lien, but the court disagreed. The court found that nothing in Section 506 of the Bankruptcy Code authorized the court to ignore a debtor’s valid lien stripping action in the name of equity. Indeed, equity follows the law and the United States Supreme court has declared that the bankruptcy courts’ equitable powers are to be exercised within the confines of the Bankruptcy Code.
A lien stripping confirmation order was challenged because of inadequate notice in In re Stassi, 20 CBN 236 (Bankr. C.D.IL 2009). There, the court granted the junior mortgagee's motion for relief from the confirmation order that contained language stripping the junior mortgagee's lien. The court held that debtors who propose a strip off of wholly unsecured liens as part of a Chapter 13 confirmation process are responsible for ensuring that the creditor whose lien is to be stripped receives notice of the plan provisions, related motions, and the dates set for objections and hearings in a manner which fully complies with the Bankruptcy Rules.
In Stassi, the Chapter 13 debtors said their home was worth $270,000 and subject to two mortgages both held by United Community Bank. The debtors said they owed UCB $341,721 on the two mortgages, with the junior mortgage being wholly unsecured. The debtors’ plan proposed to void the junior lien and treat that claim as unsecured. The debtors’ plan was confirmed without objection.
More than two months after the plan was confirmed, the junior mortgagee asked for relief on the basis that it did not receive notice of the filing of the case or of the debtors’ proposed plan. The mortgagee said it learned of the bankruptcy filing only after the debtors defaulted on the payment of the second mortgage.
The junior mortgagee said the debtors informed it of the bankruptcy in response to the lender’s inquiry about the missing payment. The junior mortgagee’s request for relief was filed less than one week after learning of the bankruptcy filing. The lender asserted its belief that the debtor’s home was worth $380,000 and that both of its mortgages were fully secured.
The court said its practice is to allow debtors to strip off wholly unsecured mortgages through plan confirmation provided that service of the plan is made in the same manner as service of an adversary complaint.
The docket in this case indicated that service of the debtors’ plan was made on the junior mortgagee by regular mail at a bank branch located in Chatham, IL. The service was made by the clerk of court through the Bankruptcy Noticing Center. The mailing to the junior mortgagee was not directed to any officer or agent and was not made by certified mail. Although the debtors objected to granting the relief requested by the junior mortgagee, they provided no evidence that the mortgagee was served in accordance with the Rules, the court said.
In Calabria v. CIT Consumer Group (In re Calabria), 20 CBN 212 (Bankr. W.D.Pa 2009), the court dismissed the debtors' complaint to strip-off a mortgage because it found that the court lacked subject matter jurisdiction to do so. The court found that the Rooker-Feldman doctrine precluded the bankruptcy court from considering whether a mortgage on the debtors’ home was invalid after a state court judgment of foreclosure had been granted on the mortgage.
The facts of the case showed that debtors executed two notes and mortgages on their principal home. The junior mortgage was assigned to a third party, which filed a foreclosure action against debtors after the debtors defaulted on the second loan. The junior mortgagee obtained a default judgment against debtors in the mortgage foreclosure case.
Shortly thereafter, debtors filed for Chapter 13 bankruptcy relief. Debtors petitioned the court to avoid the mortgagee’s junior lien because the recorded mortgage referenced the wrong address or contained no legal description. Debtors argued that state law required that a valid mortgage describe the property sufficiently to enable it to be located and identified. If the mortgage was invalid, there could be no foreclosure.
Nevertheless, the bankruptcy court rejected debtors’ argument stating that any ruling that the mortgage instrument was defective would be tantamount to the bankruptcy court concluding that the state court foreclosure judgment was “erroneously entered.” After al, the debtors’ complaint expressly requested that the bankruptcy court strike the junior mortgagee’s secured claim and issue an order to the state court requesting that the state court strike the judgment in mortgage foreclosure.
The bankruptcy court found that if it were to grant the requested relief, then it clearly would have the effect of negating the state court judgment. Under those circumstances, the bankruptcy court concluded that the affirmative claim asserted in debtors’ complaint was “inextricably intertwined” with the state court judgment rendered against debtors. So, the bankruptcy court found that debtors were requesting that the bankruptcy court do precisely what Rooker-Feldman prohibited: to undo the effect of the state court judgment. The bankruptcy court refused to do so and dismissed the case.
In the case of In re Coco, 335 Fed. Appx. 224 (3rd Cir. 2009), a chapter 7 debtor brought an adversary proceeding against the student loan creditor, seeking determination that her student loan debt was not excepted from discharge.
The bankruptcy court granted summary judgment against the student loan debtor, finding there were no material issues of fact and that the student loan creditor was entitled to judgment as a matter of law. The bankruptcy court held that the debtor failed to establish undue hardship and was thus not entitled to a discharge of the student loan debt.
The student loan debtor appealed the bankruptcy court’s decision. The court of appeals held that factual issues as to whether debtor made good-faith efforts to repay her student loans precluded summary judgment for creditor. The bankruptcy court’s judgment was vacated.
The student loan debtor will get her trial to prove that she made good-faith efforts to repay her student loan.
In the case of In re Phillips, 417 B.R. 30 (Bankr. W.D.OH 2009), Debtor filed chapter 7 bankruptcy in an effort to discharge debts. Debtor was required to satisfy the “means test” to qualify for the chapter 7 discharge because debtor’s income was above the median income level for debtor’s state. Debtor deducted from her current monthly income expenses related to real property vacated and surrendered prior to filing bankruptcy.
Debtor’s discharge was challenged by the US Trustee (UST). The UST maintained that debtor’s case should have been dismissed pursuant to §707 because debtor failed the means test that resulted in a presumption of abuse for above median income debtors when the debtor’s current monthly income was reduced by allowed deductions. Specifically, the UST asserted that it was improper for debtor to take deductions for payment of mortgages and taxes on a house that had been surrendered by debtor prior to debtor’s bankruptcy filing.
The issue before the Phillips court was whether the Bankruptcy Code’s “means test” allowed debtor to deduct from her current monthly income expenses related to real property vacated and surrendered prior to filing bankruptcy. The court noted that the majority view was that a debtor may deduct expenses on the means test for payments on secured debt even when the collateral was surrendered as long as the debtor’s continuing contractual obligations remained unextinguished on the date of the bankruptcy filing. Generally, these courts interpreted the plain language “scheduled as contractually due to secured creditors” to mean that a debtor may deduct secured debts that are contractually owed by the debtor to secured parties as of the petition date. The Phillips court believed that the majority courts essentially take a snapshot of the debtor’s schedules on the petition date to calculate the secured debt deduction on the means test form.
Finally, the Phillips court held that the means test allowed debtor to deduct from her current monthly income expenses related to real property vacated and surrendered prior to the date the bankruptcy case was filed. Consequently, the court found that a presumption of abuse did not arise under §707(b)(2).
Debtors seeking chapter 13 bankruptcy relief must propose and have confirmed a chapter 13 repayment plan. Debtors are subject to a “means test” if their household incomes are above the median income level for their state. Above-median-income debtors must proposed chapter 13 plans that devote all of their “projected disposable income” to the repayment of creditors. Problematically, the term “projected disposable income” is not defined by the US Bankruptcy Code.
In the case of In re Wisham, 416 B.R. 790 (Bankr. M.D.FL 2009), debtors were above-median-income earners who had proposed a repayment plan amount that was less than the amount the trustee believed was mandated by the Bankruptcy Code. Debtors had deducted from their “projected disposable income” calculation an amount debtors believed they were entitled to deduct pursuant to standards promulgated by the IRS for vehicle ownership.
The chapter 13 trustee objected to the plan’s confirmation alleging that the plan failed to provide the appropriate projected disposable income amount. Specifically, the trustee challenged debtors’ ability to take a vehicle ownership expense deduction for a motor vehicle that debtors owned free and clear of any liens. The trustee maintained that the projected disposable income amount provided in the chapter 13 plan should be increased by the amount of the deduction taken by debtors for the vehicle deduction.
The bankruptcy court rejected the trustee’s position and held that debtors could deduct a vehicle ownership expense when calculating the “projected disposable income.” The court allowed debtors to deduct the vehicle expense amount identified in standards promulgated by the Internal Revenue Service even though debtors owned the vehicle outright and had no lease or contract payments thereon.
"House Judiciary Chairman John Conyers (D-Mich.) has submitted an amendment to the financial overhaul package that would allow a bankruptcy judge to modify the terms of a home mortgage, including reducing the principal, CongressDaily reported today. Fifty-four amendments were filed two hours before deadline submission yesterday, and the House Rules Committee will meet today to consider the parameters for floor debate and again Wednesday before issuing its rule. Debate on the legislation could start as early as Wednesday. Against massive opposition from the banking industry, the House passed similar legislation this year, but the Senate fell 15 votes short to enact cloture."
"The Treasury Department summoned Bank of America Corp., Citigroup Inc. and other mortgage servicers to Washington, D.C., yesterday to accelerate U.S. foreclosure prevention efforts ahead of a year-end deadline for some loan modifications, Bloomberg News reported yesterday. The banks, which also include Wells Fargo & Co., JPMorgan Chase & Co. and Morgan Stanley, face a Dec. 31 deadline to make permanent the trial refinancings and concessions they extended this year to about 375,000 homeowners at risk of default. Banks have blamed the shortcomings on borrowers failing to turn in all their paperwork and confusion about eligibility standards. Banks are rushing to meet a new Treasury deadline, announced Nov. 30, to permanently convert more than half of the 650,994 loans that were in trial modification plans at the end of October into permanent reductions by year’s end. The Obama administration’s $75 billion program to encourage banks to lower monthly mortgage payments and alter loan terms for those in need had permanently modified 1,711 loans through September, according to a congressional oversight panel. Of the 375,000 loans scheduled for conversion to permanent modifications, those that aren’t switched over by Dec. 31 may not be eligible for HAMP again in the future, the Treasury said."
Foreclosures Surpass 300,000 Monthly; Are Bankruptcies Far Behind?
"U.S. foreclosure filings surpassed 300,000 for an eighth straight month as unemployment made it tougher for homeowners to pay their bills, RealtyTrac Inc. said.
Distressed real estate transactions accounted for 30 percent of all home sales in the third quarter as the median price fell 11 percent from a year earlier to $177,900, according to the National Association of Realtors. U.S. unemployment surged to a 26-year high of 10.2 percent in October as payrolls fell by 190,000 workers, the Labor Department said last week.
Housing will reach a bottom by March 2010, with lower- priced properties recovering value more quickly than expensive homes, First American CoreLogic said last month.
RealtyTrac sells default data collected from more than 2,200 counties representing 90 percent of the U.S. population.
About 7 million properties likely to be seized by lenders haven’t yet hit the market, Amherst Securities Group Managing Director Laurie Goodman wrote in a Sept. 23 report.
Housing indicators that show price increases in some areas of the U.S. are being distorted by government efforts to reduce foreclosures, which are temporarily limiting sales of seized homes, said Scott Simon, managing director at Pacific Investment Management Co. in Newport Beach, California.
Nevada had the highest foreclosure rate for the 34th consecutive month, with one in 80 households receiving a filing. The number of filings fell 4 percent from the previous year, the first year-over-year decrease since January 2006. The total declined 26 percent from September.
California ranked second, with filings for one in every 156 households. Florida was third, at one in 168, RealtyTrac said.
Arizona, Idaho, Illinois, Michigan, Georgia, Maryland and Utah rounded out the top 10 highest foreclosure rates.
California led in total filings, with 85,420, up 50 percent from a year earlier. Default notices in the most populous state more than doubled and auction notices rose 73 percent, according to RealtyTrac.
Florida ranked second with 51,911 filings, down 4 percent from October 2008, the first year-over-year decrease since July 2006. Filings fell 6 percent from the previous month.
Illinois was third at 19,946, up 57 percent year-on-year and 56 percent from September, making it the only state with a foreclosure rate in the top 10 to have a monthly gain in filings. The total for Illinois was the highest in RealtyTrac records dating to January 2005.
Michigan ranked fourth with 16,468, up about 45 percent from a year earlier, RealtyTrac said.
Nevada, Arizona, Georgia, Texas, Ohio and New Jersey completed the 10 states with the most filings.
Filings fell 12 percent from a year earlier in New Jersey, which had the 13th highest rate. They dropped 26 percent to 2,306 in Connecticut, and rose 28 percent to 4,797 in New York.
Las Vegas had the highest foreclosure rate among metropolitan areas with populations of 200,000 or more. One in every 68 households got a notice, more than five times the national average. Even so, filings decreased 27 percent from September.
California had seven cities among the top 10. Vallejo- Fairfield ranked second and Modesto was third, both with a rate of one in 81 households. Riverside-San Bernardino was fourth and Bakersfield, Merced and Stockton ranked sixth through eighth, respectively. Sacramento came in 10th.
Cape Coral-Fort Myers and Orlando-Kissimmee, both in Florida, ranked fifth and ninth, respectively. "
"Staci Schubert's career has taken her from New York to California, from graphic designer to website designer to sales executive. Most recently, she launched a business as a designer of handbags and accessories.
At 40 and with such accomplishments, Schubert is Middle Class America. She and her counterparts have long been the nation's backbone, because their steady jobs and purchasing power have helped drive our economy.
She tried to find a full-time job without much luck, because the job market was saturated. Temporary freelance design work couldn't cover her bills.
A new study by Elizabeth Warren, Harvard Law School Leo Gottlieb professor of law, and Deborah Thorne, Ohio University associate professor of sociology, finds that personal bankruptcy has become a largely middle-class phenomenon led by filers who are college-educated and owners of homes. According to the study, "The Vulnerable Middle Class: Bankruptcy and Class Status," the shift occurred even before the Great Recession.
"The bankruptcy filings are a warning about the risks now facing middle-class Americans," says Warren, chair of the Congressional Oversight Panel on the Troubled Asset Relief Program (TARP). No longer can they count on a college education, a good job and homeownership to protect them from financial collapse.
"It's horrifying for people who are not used to anything but an upward trajectory," says Bob Anderson, a bankruptcy lawyer in Wilmington, N.C. "They are used to calling the shots."
"I'm a highly educated, middle-class woman," says Schubert, who is the single parent of a 2-year-old son, Lincoln. "Until now, I have never in my life been unemployed."
Warren and Thorne say their data show that the change in the law was not a scalpel that cut out only those deliberately not paying their bills. These days, it's ordinary middle-class Americans, not a marginalized underclass or high-stakes gamblers, who are most apt to experience financial failure.
"As these time-honored wealth-building strategies become higher-risk undertakings, the middle class may face even greater economic instability in coming years, suggesting that in the modern economy, the path to prosperity may be far more perilous than anyone imagined," the authors conclude.
The proportion of bankruptcy filers who have been to college, whether they dropped out or graduated, increased from 46.5% in 1991 to 58.9% in 2007, the study finds.
"The data was taken from the boom years," Warren says, noting that it takes a long time to analyze and produce it. "I'm almost afraid to look at the data now."
Schubert, who didn't have college loans, thought she had it figured out.
"I graduated from a top art design school in the country," she says of the Rhode Island School of Design. "Opportunities always came."
After filing for bankruptcy in 2008, Schubert hasn't found a full-time job but has been doing freelance design work. She says she has designed a new handbag line and is looking for investors to help recharge her business.
Homeownership, like higher education, guarantees little, the study finds.
"For decades the middle class counted on homes as an economic lifeboat," Warren says. With a fixed-rate mortgage and a home that appreciated in value, families had a financial nest egg they could rely upon.
Now, homes are sinking families instead of stabilizing them, as home values plummet. When Diane and Nicholas Spano of Long Island, N.Y., ran into financial problems, they thought that the home they have owned for 29 years could save them.
Diane had a kidney transplant, and Nicholas temporarily couldn't work at the post office because of a back problem. Diane went back to work at a drug and alcohol center, but it closed.
They applied for a home-equity loan, without realizing that there was no way they could afford the payments. House payments totaled $3,200 a month, and Diane had $200 a month in medical bills.
This summer the couple, who are both 66, filed for Chapter 7 bankruptcy.
"I feel bad," she says. "But if we had not filed for bankruptcy, I don't know where we'd be."
The home went into foreclosure, but the Spanos are trying to work out a loan modification. Diane is working part time at CVS; Nicholas has retired.
"Carrying debt is like carrying a backpack full of bricks," says James Doan, a bankruptcy attorney in San Clemente, Calif. "It weighs people down. They feel like failures. The are embarrassed and ashamed."
The job-loss domino effect is catastrophic. In cities such as Boise, for example, the economy is dependent on the high-tech industry. Many of those workers have seen salaries shrink and bonuses disappear, while others were laid off.
"They were making good money, and now, many are working at Lowe's and Home Depot," says C. Grant King, a Boise bankruptcy lawyer. "Now, we're seeing a wave of people who never thought they'd be coming in here, filing for bankruptcy."
The housing market collapse, which devastated the construction industry, also brought in waves of filers. Builders, roofers, concrete workers, real estate agents and mortgage lenders are among bankruptcy filers now, King says.
During the boom years, many middle-class Americans lived beyond their means.
"People have been negligent with their finances," says Doan. "They've taken a lot of money out of their homes like it's an ATM."
Middle-class families were encouraged to spend. But that often turned into a disaster when their bills increased and wages dwindled.
"My wife and I were great at lubricating the economy," says Rock Macke, who lives with his wife and two children in Rancho Santa Margarita, Calif. "We loved to spend money, as is the middle-class thing to do."
Macke says a $400,000 tax bill related to stock from his now-defunct employer wiped out the couple's savings. He was able to keep working, but he says the couple lived paycheck-to-paycheck as debt mounted to about $225,000. They filed for Chapter 7 bankruptcy in March.
Since then, they've gotten rid of their expensive cars and downgraded. Macke takes care of the yard instead of paying for a gardener.
"I got wrapped up in materialism. But in a painful way, this reminded me of important things, like a healthy family, that you lose perspective on when you're trying to chase the American dream," he says."
The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23 percent, threatening prospects for a sustained housing recovery, the Wall Street Journal reported recently. Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real estate information company based in Santa Ana, Calif. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply. Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20 percent higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.
I am frequently asked if student loan debt is dischargeable in bankruptcy. Many non-bankruptcy lawyers believe that the bankruptcy laws had been changed so that student loan is no longer dischargeable by filing bankruptcy. That is not true. Although Congress may have made it more difficult to eliminate student loan debt, discharging student loan debt in bankruptcy is not impossible.
I read a very interesting opinion that was rendered by a Minnesota bankruptcy judge that discharged over $310,000 of student loan debt from a person who had completed college, medical school, and graduate school... and was healthy... and married... to a husband who made over $67,000 annually!!!!
So, there is hope for other people who owe student loan debt and cannot afford to repay it. Please contact me to discuss this case and other issues relating to the elimination of student loan debt or see my website at http://www.schallerlawfirm.com/student_loan_discharge.html . Below is a summary of the case to which I referred.
In re Walker v. Sallie Mae Servicing, 406 B.R. 840 (Bankr. D. Minn. 2009). Debtor discharged over $310,000 of student loan debt that she incurred while earning a bachelor’s degree at the University of Illinois, a medical degree at University of Illinois College of Medicine, and a master’s degree at Governors State University. Debtor was healthy and able to work, but stayed home to rear five children. Debtor’s husband held a full-time job as a policeman and a part-time job as a security officer. Debtor’s approximate household income was $67,000 annually.
In addition, within a year of filing the adversary proceeding to discharge the student loan debt, debtor’s spouse purchased a $40,000 new vehicle by incurring a vehicle loan with a monthly payment obligation of $850. Plus, debtor’s spouse signed a $50,000 second mortgage to build a 22-foot deck off their home with a monthly payment obligation of $372.
Nevertheless, the bankruptcy court rejected the objections to discharge argued by the student loan creditors, finding that debtor had provided sufficient evidence that the repayment of the student loan debt would have been an “undue hardship” on debtor and debtor’s dependents. The Walker Court applied the 8th Circuit’s “totality-of-the-circumstances” test. The court made note that the health of debtor’s twin approximately 9-year old sons was a major factor in its decision. The twins suffered with a form of child autism and were receiving intensive therapy offered by the state government for children with autism.
Surprising, the court allowed the discharge finding that the debtor had overcome debtor’s burden of proving “undue hardship” without calling an expert witnesses for an opinion as to the sons’ status and prognosis from the perspective of medicine/psychology or education. Nevertheless, the $310,000 student loan debt was discharged.

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 v. 
 § 70
 § 70
 v. 
 v. 
 v. 
 v. 
 v. 
 §707
 §707
 v.