What's behind the change? While the economy has certainly contributed to a number of bankruptcies, a growing number of people are filing bankruptcy because of medical debt.
According to a recent study from the American Journal of Medicine, over 62 percent of all bankruptcies were attributed to medical bills. The study went further to say that most Americans are only one serious illness away from filing bankruptcy.
]]> After a cancer diagnosis took a preschool teacher's health, the tidal wave of medical bills eventually left her homeless and without even a car to get around in. Before calculating the cost of chemotherapy, the woman's medical debt exceeds $90,000. She is not alone. The cumulative cost of cancer treatment is staggering.There may be good reason for the rise in what is known as medical bankruptcies. The slump in the economy has left many unemployed and unable to afford medical insurance. But that is not the only reason.
Many may be surprised to learn that lack of insurance only accounted for 25 percent of the people filing bankruptcy. The majority of the people were well-educated, middle class homeowners.
The study concluded that the soaring cost of health care was the significantly to blame. The conclusion was supported by examination of medical bankruptcies in 2001. That year, medical debts were responsible for 46 percent of all bankruptcies.
More and more, the stigma about bankruptcy is vanishing and people are recognizing bankruptcy as a valuable resource to help them with their debt problems. An education about bankruptcy often helps people find solutions for their debts.
Sources: www.digtriad.com, "Study: More Than Halff of US Bankruptcies From Medical Bills," Faith Abubey, 15 May 2012 and American Journal of Medicine, "Medical Bankruptcy in the United States, 2007: Results of a National Study," David U. Himmelstein, Deborah Thorne, Elizabeth Warren, and Steffie Woolhandler, 5 June 2009
]]>While the idea may seem appealing to those who were unable to negotiate a loan modification and have already lost their homes to foreclosure, the new plan reflects an attitude that may not be good for people looking for foreclosure relief so they can keep their homes.
]]> Although banks can claim that the new program will help property values higher by keeping the homes occupied, the same could also be accomplished if banks would be willing to work with homeowners on loan modifications.In fact, the timing of Bank of America's announcement is curious, considering loan modifications are supposed to be a part of the $25 billion mortgage settlement the lender and five other mortgage moguls.
The truth is that all of the banks participating in the settlement didn't really want to agree to loan modifications at all and tried to make sure they were not a part of the deal.
The reality is that Bank of America is still not keen on giving loan modifications. Only four percent of the troubled loans it holds have been successfully modified or are in a trial modification program. It has cancelled half of its trial modifications.
Like other mortgage companies, many believe the mortgage giant would still prefer to gamble on a mortgage recovery than take a loss on their investment.
Homeowners in Nashville and Middle Tennessee who are trying to find a way to save their homes may want to take charge of their situation by exploring the option of lien-stripping. By stripping off an unsecured second or third mortgage in a Chapter 13 bankruptcy, a homeowner can reduce the total amount owed on their home and their payment while keeping the title to their house.
Lien-stripping provides the same benefit to the community by keeping the home occupied while allowing the homeowner to avoid foreclosure. For many frustrated homeowners, lien-stripping gives them the power to take charge of their financial situation.
Source: www.marketwatch.com, "Will B. of A.'s mortgage-to-lease help homeowners?" David Weidner, 23 March 2012
]]>The Tennessee Department of Commerce and Insurance's Consumer Affairs Division announced a warning last week to Tennessee homeowners facing foreclosure.
]]> The scam works like this; a person calls the homeowner pretending to be either a bank employee or a third-party settlement administrator. The scammer tells the homeowner that they are eligible for a portion of the settlement and will try to convince the homeowner to provide the scammer with the homeowner's bank information so they can deposit the settlement proceeds directly into the bank account.Never provide your bank information to anyone who calls you. While some homeowners may expect to hear from their mortgage company in the coming months, the mortgage company will never ask you to reveal your credit card or banking account number over the telephone.
Another scam and debt relief trap promises to help homeowners with a loan modification for a fee. The Tennessee Consumer Protection Act expressly forbids charging people fees for loan modifications.
Homeowners in particular may still benefit from speaking with a Nashville, Murfreesboro or Clarksville bankruptcy lawyer. Bankruptcy offers a number of options for homeowners, especially those who more on their homes than they are worth.
Source: www.newschannel9.com, "Tenn Consumer Affairs Warns of Mortgage Settlement Scams," 6 March 2012
]]>The truth is that there are various bankruptcy laws that deal with money that is owed to you or money that you spend prior to filing for bankruptcy. To stay safe, it is always advisable to consult a Murfreesboro bankruptcy attorney before taking any action. With that said, there are some things that are generally true for all people filing bankruptcy.
]]> Your Bankruptcy Trustee Will Review Your Tax ReturnsThe first thing to know is that your bankruptcy trustee will want to see your tax returns, whether you have filed your tax returns and have already received your refund or not.
In fact, most trustees will not grant you your bankruptcy discharge until they have seen a completed copy of your tax returns.
One of the reasons trustees want to see tax returns is to determine whether there will be any money available to pay back creditors. If your tax refund cannot be protected using bankruptcy exemptions, the trustee will consider it unprotected disposable income and will use it to pay your creditors.
Spending Your Tax Refund Before You File Your Case
Often people are counting on their tax refund money for expenses they have put off. This is generally permissible as long as the money is being spent on necessary living expenses.
Here are some examples of permitted basic living expenses:
If you do spend your tax refund before filing your bankruptcy, you should keep your receipts in case the bankruptcy trustee asks you for proof.
Now that you have an idea of what is acceptable, you should be aware that there are certain things that are not permissible under any circumstances: Here are some things that you should never do:
Paying back friends or family members is not allowed because it is considered a preferential transfer. The idea behind it is that you are not allowed to like one creditor more than another. If you do pay your friends or family members back money that you owe them, the trustee does have the right to go after them to recover the money and distribute it to your creditors.
Even if you don't plan on spending your tax refund before your bankruptcy is filed. There may be exemptions available to protect your interest in your tax refund. To make sure your refund money is protected, you should always speak with an experienced bankruptcy lawyer to discuss your options.
Source: www.ehow.com, "Can You Keep Your Refund After a Chapter 7 Bankruptcy?" Pamela Parker
]]>Understanding the truth about bankruptcy can do a lot to take away the fear. Once people have dispelled the myths, it is a lot easier for them to contact a Nashville bankruptcy lawyer who can educate them about how bankruptcy can offer them relief.
]]> Common Bankruptcy MythsBankruptcy myths are often the reason many people who need help, don't get it. Recently, MSN Money looked into bankruptcy myths and exposed the mistaken assumptions that many people hold. Here are just some of the beliefs keeping people from a fresh start.
Everyone Will Know - In this technologically charged world it often feels as though our information is available to everyone. Although a bankruptcy filing is a matter of public record, it is unusual for a paper to publish somebody's name unless they are a prominent person or a large corporation.
I'll Lose Everything - Liquidation, the nickname for Chapter 7 bankruptcy, often leads people to the mistaken assumption that they will have to give up everything to get relief from their creditors. The truth is that most people are able to keep all of their assets. Tennessee allows people to use laws called exemptions to protect their assets.
My Credit Will Be Ruined Forever - People who have filed bankruptcy are frequently surprised by how quickly they receive credit card and automobile offers. People will have these as well as other opportunities to rebuild their credit.
If I'm Married, my Spouse Must File Too - No bankruptcy law mandates that a spouse must file if the other spouse files a bankruptcy petition, although sometimes it may be in their best interest to do so. If both spouses share a lot of joint debt, then a joint bankruptcy may be a good option.
It is Difficult to File Bankruptcy - Filing for bankruptcy is not difficult, however an experienced Nashville bankruptcy lawyer is recommended to guide an individual through the bankruptcy process.
People Who File Bankruptcy Are Irresponsible - Bankruptcy has deep roots in history. It was developed and created for people who have had life show up in unexpected ways. Many people who file for bankruptcy do so because a life event, such as a medical condition or divorce, has devastated their finances.
These are just a few of the myths that keep people stuck. Anyone grappling with debt should speak with a Tennessee bankruptcy lawyer who will give them straight talk and answers about bankruptcy.
Source: www.money.msn.com, "12 Myths About Bankruptcy," 17 November 2011, Bankrate.com
]]>These values become guideposts to our adult lives. It is how we live responsibly in society. We pay our bills. Few of us consider what we might do if these beliefs come into conflict with taking care of our family. It may be difficult to imagine how this divergence could occur.
Yet, for many responsible Tennessee families this is just what has happened to them in the aftermath of the mortgage meltdown. They find themselves in the position of choosing between paying the mortgage and providing for the needs of their families. For the first time in their lives, many people in Nashville faced foreclosure.
]]> How did this happen? When the economy was thriving, many people put their faith in real estate, which appeared at the time to be the best return on investment. Home values skyrocketed and families cashed in on the equity in their homes to pay off bills, take vacations and purchase additional investments to increase their wealth. Everyone seemed to be doing it, and for many, it felt like a safe and reasonable investment.When the mortgage bubble burst, homeowner's equity evaporated and mortgage companies began to demand ever larger sums for their loans. Families began to feel the pinch and soon found themselves trapped in homes they could neither afford to keep nor afford to sell. This is where the moral dilemma comes in.
Most people confuse their obligation to pay their bills, which is a contract, with a moral obligation. The greatest moral duty for any individual is to take care of the family. A family deprived of a means of support or food on the table is easily devastated, both emotionally and physically. A bank, on the other hand, is hurt fiscally, but stands a far greater chance of recovery.
For some individuals, meeting their family obligations won't always mean losing their homes. There are other options. For example, a Tennessee attorney may be able to help families with stripping off second mortgages on their homes by using Chapter 13 bankruptcy to eliminate unsecured debt.
Every situation is different and that is why there are different types of bankruptcy available to help families get a fresh start.
Source: www.msnbc.msn.com, "How a Financial Professional Lost His House" 9 November 2011, Carl Richards
]]>Payday loans target the poorest. Individuals who are living paycheck to paycheck and struggling to survive usually do not have the means of gathering a reserve to cover unexpected expenses when an emergency flares up. When these life events do happen, individuals and families are often forced to make the difficult choice between going hungry or taking out a payday loan.
The end result of payday lending is that the poor are pushed deeper and deeper into debt.
Ultimately, individuals and families realize they can no longer keep up with their required payments and default. Frequently, people in Nashville look to bankruptcy for relief from their debt woes.
]]> Tennessee A Target State for Payday LendersGiven their target audience, it may not come as a great surprise that Tennessee boasts one of the nation's highest concentrations of payday lenders. According to the U.S. Census Bureau, 17.1 percent of all individuals and 13.1 percent of all families live below the poverty level in Tennessee.
The laws in Tennessee do little to protect its poor. Although the legislature has enacted laws that place caps on the annual percentage rates that may be charged by payday lenders, the interest rates are punishing. An individual borrowing $250 from a payday lender may pay interest as high as 313 percent. Caps for $100 loan are even higher, 459 percent.
Stronger Protection Needed?
Given the challenges created by the nation's crippled economy, it is a wonder that lawmakers have not done more to protect their citizens. According to the Consumer Federation of America, some states, such as Georgia, treat payday lenders as criminals, using racketeering laws to protect their citizens from the strong-arm tactics of payday lenders. Other states, like New York, have banned payday lending through their criminal usury laws.
Some communities are fighting back. When their legislators fail to come through for them and place appropriate caps or restrictions on payday lenders, some cities, such as Dallas, Texas, have stepped in to place limits on the terms of the loans and the caps. Other communities are partnering with banks and credit unions to provide short term loans to borrowers at lower interest rates.
Source: www.thewestsidegazette.com, "Poverty and Payday Loans: Communities Take Local Actions to Fight Predatory Lending", 6 October 2011, Charlene Crowell
]]>Even for those who have a valid defense, they may not have the assets to hire an attorney to represent them. Consequently, according to www.Forbes.com, the majority of these lawsuits wind up as default judgments against the debtor.
A judgment, whether it be by default or not, is a ruling by the court that a debtor owes the creditor money. Once that judgment is in place, the creditor has the right to execute that judgment and seize the debtor's assets.
]]> When a creditor obtains a judgment against a debtor, there are a number of potential consequences the debtor should know about. Depending on the debtors' circumstance, filing bankruptcy may be the best way to avoid them.Fallout From a Judgment
The first place that most creditors look is a debtor's bank accounts. Cash in bank accounts is the low hanging fruit for creditors. Once a judgment is in place, a creditor can garnish or levy money from any bank account with the debtors name on it. What is worse, they can do so without warning. A debtor will typically receive a letter from the bank after the money has been seized. This is small comfort for a family that has been struggling to save for a rainy day.
Here is a word of caution to anyone who is considering of hiding money in a friend or family member's bank account. Do not do it. There are bankruptcy rules that prohibit concealing funds or other assets by placing them in another person's possession.
Even if debtors are able to protect their assets from creditors, they may have another factor to contend with, wage garnishments. In Tennessee, a creditor may garnish a debtor's wages. The exact amount is determined by a formula, but for most people, the amount garnished ends up being approximately 25 percent.
There are a few other things debtors need to know about judgments. Judgments can stay on a credit report for a long time, typically ten years. Even after that time the judgment may not go away. The creditor may renew the judgment. In this case a debtor's possessions may remain vulnerable until the judgment is satisfied. Finally, judgments don't just apply to the property a debtor owns at the time it is issued. Judgments can be used to can be used to get property and possessions acquired at a later time.
Bankruptcy Offers Protection
One of the great advantages of bankruptcy for anyone with a judgment against them is that it provides protection from the judgment. Although a bankruptcy filing will not remove a judgment from a credit report, it will prevent creditors from contacting or pursuing a debtor to collect on a debt. This means that a creditor will not be able to garnish any wages or levy any funds from a bank account.
Even better, once a debtor's bankruptcy debt has been discharged, the debtor will be able to immediately start working to re-establish their credit. So, although bankruptcy in itself is a negative credit event, the discharge of the debt eliminates one of the loads that caused the debtor's credit report to suffer in the first place.
]]>Social Security Benefits Are Not Income in Means Test
Eligibility for a Chapter 7 consumer bankruptcy (a liquidation bankruptcy that eliminates almost all types of debt) depends upon a showing that you do not have a high income. A "means test" is applied to all debtors to gauge their ability to repay loans before a bankruptcy case may go forward.
]]> Generally, if your household income falls below the median for similarly sized households in your state, you will be presumed to have met the means test (in Tennessee, for instance, the median income for a four-person household is $62,197 per year). However, even if your income is above the median, you can still qualify under the means test if your disposable income is lower than a certain portion of your debt (the amount is calculated by the application of a complex formula).The lower your income, the more likely you are to qualify for Chapter 7 bankruptcy protections. But, if you receive Social Security benefits, you should not panic: Social Security payments are specifically excluded from income for purposes of the means test.
A bankruptcy court may scrutinize your Social Security payments to determine whether your Chapter 7 filing is being made in good faith. Even so, if a large portion of your financial support is derived from Social Security benefits, you are likely to qualify for Chapter 7 bankruptcy under the means test.
Pre-Medicare Could Be Ideal Time to File For Bankruptcy
If you have health problems and are about to sign up for Medicare, bankruptcy could be an attractive option.
Medical expenses are one of the top reasons many bankruptcy filers cite as the source of their debt problems. Although your Medicare coverage should help cover post-bankruptcy medical costs, you may want to take the opportunity to eliminate your medical debt now before your full retirement benefits kick in.
The relationship between Social Security benefits and bankruptcy filings can be complex. If you are struggling with debt and receiving Social Security payments, ask a Nashville bankruptcy attorney how you can best take advantage of the protections offered by the bankruptcy code.
]]>It wasn't always this way. While federal student loans have not been dischargeable in bankruptcy since 1978, private student loans were dischargeable until 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act went into that effect. Since that time all student loans have in essence been non-dischargeable.
]]> Presently, the only way a student loan can be discharged in a bankruptcy is by the introduction of an adversary proceeding, which is a separate action from the bankruptcy petition. In the adversary motion, the debtor must show the court that repaying the student loan debt will result in an undue hardship on the debtor and his/her dependents.This is a high hurdle that most debtors cannot meet. While the test is not set in stone, generally a debtor must prove the following:
Student loan companies have taken advantage of the law, lending indiscriminately to students without any federal limits on the amounts they can lend. These private companies have enjoyed great profits while sitting comfortably in the knowledge that the student borrowers will have no opportunity to escape these debts. Over the past ten years, private student loan lending has increased by 27 percent.
According to Forbes, US Senator Dick Durbin is concerned about the burden of these private loans on optimistic students. "Some of these private student loan repayment schedules -with double-digit interest rates - can follow a student borrower from graduation to the grave."
The Illinois senator wants to reign in the lenders. He is introducing legislation to restore the law to the way it was prior to the 2005 bankruptcy amendments, and make private student loans dischargeable. He hopes of making private lenders more cautious about their lending practices.
Source: http://www.forbes.com/sites/ilanagreene/2011/08/02/college-loans-for-life/
]]>Unbearable medical debt is not just a risk to the many Americans without health insurance. David Himmelstein, a national expert on public health policy, cautions against cutting insurance benefits to balance budgets. Himmelstein, who is also an associate professor at the Harvard School of Medicine, has studied health-related bankruptcies for over ten years and found that medical bankruptcies were on the rise well before the recent economic downturn.
]]> According to Himmelstein's published report in the American Journal of Medicine, three quarters people who filed for medical bankruptcies actually had health insurance. They became buried in debt due to inadequate coverage which buried them with high insurance premiums, high deductibles and extensive copay requirements.A second report in the American Journal of Medicine, published this year reviewed the incidence of medical bankruptcies in Massachusetts since its health reform legislation had been enacted. Himmelstein found no decrease in medical bankruptcies even after the state had cut the rate of its rate of uninsured residents in half. The state boasted only a slightly lower rate of medical bankruptcies than the rest of the United States in 2007.
The decision to file for bankruptcy is made with good reason. Bankruptcy can help an unmarried individual or couple either eliminate debts or arrange for a fair and convenient repayment schedule over a period of three to five years.
Realizing that there is hope to escape a mountain of bills that arose following an urgent problem can be a tremendous relief for many. A Tennessee bankruptcy lawyer can offer a range of insights about strategies to put a bad period in the past.
Source: http://www.murfreesboropost.com/research-medical-bills-leading-cause-of-bankruptcy-cms-26585
]]>What Is Chapter 11?
A Chapter 11 bankruptcy is also known as reorganization. It is typically used by businesses so they can remain operational while paying off their debts. Although a Chapter 11 bankruptcy may be completed in a few months, it generally lasts several years.
]]> How Does a Chapter 11 Bankruptcy work?Once a Chapter 11 bankruptcy has been filed, an automatic stay comes into effect, barring creditors from seizing any assets or otherwise pursuing the company to collect on delinquent accounts. Next, a disclosure statement and a reorganization plan are filed with the court. The disclosure statement lists all of the company's assets and all of their liabilities. The reorganization plan outlines how the creditors will be repaid. Both the court and the creditors must approve this plan. The appointed trustee will evaluate the plan and conduct research to gauge its chances for success. If the trustee is satisfied, the plan is confirmed .
Advantages of Chapter 11 Bankruptcy
The most important advantage to a Chapter 11 bankruptcy is the continued operation of the business. Filing a Chapter 11 bankruptcy buys the company the critical time necessary to get its affairs in order. Another important benefit of the Chapter 11 bankruptcy is the ability of the debtor company to retain control of a good portion of the business's daily operations. This includes the ability to accept and reject contracts. The company may also continue to borrow money to assist with the daily operating costs. As one would expect, there are a few conditions. A secured creditor may not be placed at a disadvantage by the borrowing. Any additional loans are subject to court approval.
Disadvantages of Chapter 11
A Chapter 11 bankruptcy should not be considered without weighing it drawbacks. The biggest hurdle is the cost. Chapter 11 bankruptcies are very expensive. In addition to the filing fee of $1,039.00, there are attorney's fees to be paid throughout the administration of the plan. The fees can be as low as $5,000 but may reach as high as $1 million, depending on the size of the company involved. While this is a significant obstacle to overcome, it should not be the deciding factor alone. If the business has a reasonable chance of emerging from Chapter 11 bankruptcy as a viable entity, it may be worthwhile.
The second major drawback is a loss of control over major company decisions. The U.S. trustee is responsible for monitoring and administering the bankruptcy. This may include filing detailed monthly accountings for the court's review. Although the company may can make choices about the daily operations of the business, the court will have the final say on any large decisions affecting the company.
Finally, the most daunting aspect of a Chapter 11 bankruptcy is the possibility that a plan may not be approved. If the court determines that the business is not likely to succeed, it will not confirm the reorganization plan and the business owner may be forced into filing a Chapter 7 bankruptcy and dissolving the company.
Special Rules for Small Businesses
There are special rules for small businesses filing a Chapter 11 bankruptcy. A business with fewer than 500 employees, less than $2,343,300 million in debts and who has not had a creditors committee appointed by the US trustee may qualify as a small business case.
Small business cases will typically move more swiftly than other Chapter 11 filings, but they will also be subject to greater oversight in the way of interviews with the court, company reports and regular tax returns.
Explore Available Options With an Attorney
Bankruptcy is extremely complex and should not be pursued without a thorough evaluation by an experienced bankruptcy attorney. A local lawyer will be able to review a company's options so that an informed decision can be made about how to proceed.
]]>Nashville lawyer David F. Cannon of the law firm of David F. Cannon has devoted his career to helping individuals and businesses achieve lasting solutions to serious debt problems. He has filed thousands of bankruptcies since 1991, when he first began practicing law. Further, he is board certified as a Consumer Bankruptcy Specialist by The American Board of Certification and The Tennessee Board of Continuing Legal Education and Specialization. Stated simply, few attorneys are able to match his level of experience and knowledge in this field.
Our law firm will make periodic updates to this blog. We hope it serves as a forum to discuss bankruptcy law. To schedule a confidential consultation with our law firm, call 615-800-3725.
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