I am seeing an increasing problem with student loan debt in my bankruptcy practice. I have run across individuals with over $100,000.00 in student loan debt, and the payments can be upwards of $1,000.00 per month. This leads a lot of people to ask me if bankruptcy can help with the student loan debt, and unfortunately in most cases bankruptcy does not help. The law is skewed against individuals being able to discharge their student loan debt in bankruptcy. A common standard th courts employ when determining whether to discharge student loan debt is an “undue hardship” standard.
The problem is not just the standard the courts employ to determine if you can get rid of student loan debt, you also need to consider the cost of legal representation to get rid of the debt. In some cases the student loan lenders force the debtor into a trial in bankruptcy court, then appeal any adverse rulings to higher courts. In most cases people who have student loan debt cannot afford the legal representation necessary to get rid of student loan debt.
Congress should pass common sense reform allowing people to discharge at least some of their private and government subsidized student loans. A system should be set up that allows people who have paid on their student loan debts for a certain amount of time to discharge those debts in bankruptcy, so they are truly able to get a fresh start out of bankruptcy. It would be a shame if people did not pursue an education out of fear of student loans that never go away.

For individual looking to modify a mortgage and also considering a bankruptcy a common worry is that bankruptcy will disqualify them for the modification. The first and most important factor with the disqualification of a modification is whether a modification will be granted in the first place. In most instances the chance at modification of home mortgage are remote. Banks will review the information provided by individuals and often conclude that the same issues that caused late payments on the mortgage still exist. Those issues usually revolve around lack of income to afford the house and too much debt.

Often the best advise I can offer is to prioritize which is more important and do that first. If creditors have taken judgment and are going to garnish a bank account or wages you should file the bankruptcy first. If you are late on house payments and no unsecured creditor has judgment work on the modification.

If a bankruptcy is filed, one option is to file a chapter 13 bankruptcy. Individuals who are behind on house payments can both catch up on house payments and satisfy credit cards and medical debt. A second option in bankruptcy is to file a chapter 7. Many find it much easier to catch up on house payments and remain current when not burdened by unsecured debt. Contact me today to discuss how to keep your house.

I have helped a lot of Minnesota residents file for bankruptcy protection. In many cases my clients do not want to file for bankruptcy but have been forced into bankruptcy by circumstances beyond their control. I talk to clients every day who have lost their jobs, had major medical issues (without adequate medical coverage), recently were divorced, or a small business has failed. In most cases the things that have happened to my clients could happen to anybody in Minnesota myself included. That is why when I meet with clients I try to understand all the things that have happened in their life to bring them to talk to me and do not judge the clients for having to talk to a bankruptcy lawyer.
It is important to remember for all the people who judge others for filing for bankruptcy protection, that they have not walked in their shoes and should attempt to put themselves in that position to see how they would feel. I have seen so many different reasons for a bankruptcy filing, that I realize that most clients only file for bankruptcy protection after they have no other options.
Most clients have exhausted all of their personal savings, retirement, home equity and once all of that is gone do they consider bankruptcy. In many cases these clients would have been better off talking to me earlier to see if I could help them save a few assets for retirement, by filing for bankruptcy protection earlier. I am sure you could find similar stories from the clients who attend 341 meetings in Minneapolis and St Paul every day. If you are thinking having financial difficulties in Minnesota you need to talk to a bankruptcy lawyer before you run through all your savings and still have a mountain of debt.

A common worry that individuals have when thinking about bankruptcy is how will it affect their credit score. Many individuals considering bankruptcy will also consider debt settlement or debt consolidation as a way out of debt. The question is which is better or worse for your credit score?

Chapter 7 bankruptcy takes on average 95 days from filing to discharge. Immediately after discharge individuals can begin to rebuild credit. Think about drawing a line in the sand. Prior to filing most individuals have credit scores of 500 to 600, which is low. Filing bankruptcy will not lower the score much more although it will be listed on a credit score. Once a discharge is received individuals will often receive credit card offers and extensions of credit. The reason is individual with income suddenly become debt free, therefore their debt to income ratio looks better. Creditors also know that an individual can not file another chapter 7 for eight years, their chance of being paid is high. Through responsible credit use, including charging only what you can afford and paying the balance in full and on time every month, as well as paying mortgage and car payments timely, credit scores will climb.

Debt consolidation or debt settlement will often take years to complete. The lengthy process will mean that the low credit scores of 500 to 600 will remain low until the debt is satisfied. Beyond the length many creditors will report settled in full or compromise in full as a designation on the credit report. Such designation are viewed as a negative.

The best thing to do when considering the affect that any process will have on your credit score is to know your options.

The answer to this depends. If you file for bankruptcy protection in Minnesota and receive your bankruptcy discharge you will no longer be personally liable for any secured loans including home loans, car loans, boat loans, etc. The bankruptcy discharge gets rid of your personal obligation to pay on the loan. If you decide to stop making payments on the secured loan the lender cannot pursue you on the loan (provided you did not reaffirm the debt).
The lenders can still take the property back because that liability does not go away with a basic bankruptcy filing, so the lender can still foreclose on your home if you stop making payments after the bankruptcy. Lenders can also take back cars, boats, motorcycles, etc if you stop making the payments since those loans were secured by that vehicle as collateral. If lenders could not repossess property after bankruptcy they would be much less likely to lend, given the large liability if their customer files for bankruptcy protection. In some instances it is possible to strip off junior liens on homes, but that is not a given in every case, so you need to contact an attorney to determine if this is possible is your case.

This proposal by the National Association of Consumer Bankruptcy Attorneys (NACBA) would allow homeowners who enter a chapter 13 bankruptcy to reduce their interest rate to zero for the term of their plan. This would allow the payments to be applied directly to principal and help the homeowner dig out from a possible negative equity situation. This would encourage many people in a chapter 13 bankruptcy to stay in their homes, instead of letting their home go through short sale or foreclosure. If people are allowed to stay in their homes, it would help the housing market recover by decreasing the number of short sales or foreclosures for sale. It would also reduce foreclosure related costs by the banks holding the notes. If this was coupled with the ability of homeowners to strip off wholly unsecured junior loan, it would encourage many of my clients to keep their homes. Instead many of my clients choose to let homes go, due to no equity for the foreseeable future, or inability to make the mortgage payments.

A recent article on Yahoo that was based on data from the Federal Reserve Bank shows that American consumers are slowly paying off debt (http://finance.yahoo.com/blogs/daniel-gross/big-dig-fed-data-shows-households-attack-mountain-170636810.html). It also shows that bankruptcy filings are down by around 17% so far in 2011. This seems to indicate that people are either attempting to settle their outstanding debt, or a number of people may not have sufficient assets to protect to benefit from filing for bankruptcy protection.
In some cases you may not need to file for bankruptcy protection if you are “judgement proof”. This means that you do not have any assets that creditors can take after they get a judgement against you. If you are on some sort of government assistance with little or no assets, the creditors can not collect from you, and you would probably not need a bankruptcy filing. This is primarily true if you do not see a future without the government benefits due to a disability. If you are simply out of work but have some job prospects or other assets to protect filing a bankruptcy is one option to consider.

This is a common situation facing our bankruptcy clients. The client is separated from their spouse and they always wonder should we file bankruptcy together. The answer to this depends upon each situation but in general people getting divorced with a large amount of debt should file a chapter 7 bankruptcy before divorce, and should file a chapter 13 bankruptcy separately, after the terms of the divorce have been finalized. The reason is that if all our clients are fighting about is debt, then filing a chapter 7 bankruptcy wipes out the debt, making the divorce an easier process. If the client does not qualify for a chapter 7 bankruptcy, then they should file a separate chapter 13 bankruptcy, the reason for this is simple, after a divorce you do not ties that bind the couple together. If you file a joint chapter 13 bankruptcy, you will have to rely on another party to continue to make the plan payment for 3-5 years.