Kurt O’Keefe, Esq. | Detroit MI | Bankruptcy & Consumer Lawyer

Student Loan Problems, Bankruptcy Rarely Helps

Kurt O'Keefe — Mon, 01 Mar 2010 15:17:39 +0000

There is over $740 billion in student loans out there, and with jobs hard to come by, repaying can be tough, or, impossible, even if you have to file bankruptcy.

as shown in a Wall Street Journal story by Mary Pilon, even doctors are having trouble repaying student loans.

Many people took out loans believing that the income from the job they got due to the schooling the loans paid for, would be more than enough to re-pay the loans.

Then, with the recession, jobs disappear or pay less.

Before you take out a loan, or considering getting more student loans, beware! The loan does not go away, and the interest does not go away.

Even in bankruptcy.

Whether in a Chapter 7 bankruptcy, or a Chapter 13 payment plan bankruptcy, in order to discharge a student loan, you have to file a separate lawsuit and prove it would be an undue hardship on you to repay the loan.

Analyze what repaying the loan will take, make conservative assumptions, about what kind of job you can get, and how much it will pay.

Realize money paid for student loans is not available to you to buy a house, or a vehicle, or pay the cost of child raising.

Don’t believe the hype, especially from the colleges..

Most colleges are more than happy to have you take out loans, after all, they get the money!

The message in our culture is, “to get a good job, you need a good education.”

You hear it on the all over “the average college graduate makes over a million dollars more over a working lifetime than a high school graduate.”

Hey, college is great.

If you can afford it.

There is what the economists call: opportunity cost.

Don’t forget, the four or five years or more that you spend in college, you could be working. (OK, assuming you can get a job)

You lose the opportunity to work full time.

If you are borrowing $50,000 per year of college, not likely you are going to get a financial return on that amount, meaning, you will not make enough more to pay off the loans, considering the amount of income you forego by attending college instead of working. (I know, if you can get a job.)

But, if you cannot get a job, makes even LESS sense to get huge student loan debt.

Do not be like the doctor in the story, who is on track to pay off her student loans when she is 70.

HAMP Failing

Kurt O'Keefe — Sun, 07 Feb 2010 19:58:57 +0000

Due to not getting the mortgage companies to voluntarily reduce the principal balances, HAMP is failing, as noted in an excellent story in The Huffington Post.

Reducing principal balance is, to agree to lower the total amount owed on a house.

What happened is, the mortgage companies took their foot off the gas last year when judicial mortgage modification was before Congress. Once they defeated that in the Senate, it was back to business as usual.

Mortgage companies told the politicians, hey, we are fixing the problem ourselves, no need to force us, that would mess up the mortgage market.

And, of all things, the mortgage companies say to our leaders, watch that moral hazard, do not let people off the hook for the amount they agreed to pay for a house just because it went down in value!

Well, I am not sure how much money is left in the federal government moral hazard account, after the trillions our leaders spent guaranteeing and bailing out the mortgage companies who did, after all, make hundreds of thousands of bad loans.

But, did, after all, make lots and lots of campaign donations, to both parties.

Many of my clients tell me, they do everything the mortgage company asks for them to qualify under the HAMP program, only to have the rug pulled out from under them, usually after months, and be told they do not qualify after all.

The story of one such couple, who ended up owing MORE on their mortgage, $20,000 more is told by MSNBC.

As opposed to a principal reduction, that would have reduced everyone’s losses, including the precious banks who seem to run the country now.

Even the investors in the securitized trusts that actually own the mortgages have figured it out.

Quoting from the Huffington Post,

” . . . .Micah Green, a partner at Patton Boggs LLP, a Washington law firm that represents a mortgage-investor group of asset managers who hold more than $100 billion in residential mortgage-backed securities.

Without principal reductions, “there is a growing realization within the administration and on Capitol Hill that it’s very difficult to bottom out the housing market,” Green said.

“The interests of investors are totally aligned with those of homeowners,” he added. “Investors are willing to put money on the table and frankly take their losses, which they already have.”

Foreclosures continue to rise, there will be even more, house value continues to decline, making even more homes worth less than what is owed on them.

It says here, come summer, it will be impossible for the White House and our other leaders to deny that the crisis is worsening and the political fingers in the dyke will not prevent the dam from bursting.

HAMP Failing

Kurt O'Keefe — Sun, 07 Feb 2010 19:56:38 +0000

Due to not getting the mortgage companies to voluntarily reduce the principal balances, HAMP is failing, as noted in an excellent story in The Huffington Post.

Reducing principal balance is, to agree to lower the total amount owed on a house.

Mortgage companies told the politicians, hey, we are fixing the problem ourselves, no need to force us, that would mess up the mortgage market.

But, did, after all, make lots and lots of campaign donations, to both parties.

The story of one such couple, who ended up owing MORE on their mortgage, $20,000 more is told by MSNBC.

As opposed to a principal reduction, that would have reduced everyone’s losses, including the precious banks who seem to run the country now.

Even the investors in the securitized trusts that actually own the mortgages have figured it out.

Quoting from the Huffington Post,

Without principal reductions, “there is a growing realization within the administration and on Capitol Hill that it’s very difficult to bottom out the housing market,” Green said.

“The interests of investors are totally aligned with those of homeowners,” he added. “Investors are willing to put money on the table and frankly take their losses, which they already have.”

Foreclosures continue to rise, there will be even more, house value continues to decline, making even more homes worth less than what is owed on them.

What Do You Mean, I Owe Too Much To File Chapter 13?

Kurt O'Keefe — Sun, 31 Jan 2010 18:06:45 +0000

Now, you can owe up to $1,010,650 of secured debt, and still be able to file Chapter 13, depending on how much unsecured debt you owe.

So, if your house is worth $900,000, and you owe $900,000 on it, that is $900,000 of secured debt, zero unsecured debt, you can file Chapter 13, depending on the total of your other debts..

Adjustments are made every couple of years for inflation, which leads to the odd numbers.

The limit on unsecured debt, like charge cards, medical bills, balance still owed on a repossessed boat, car, truck, whatever, is currently $336,900.

Bankruptcy law limits payment plan bankruptcy, or Chapter 13, to individuals, that is, persons, not corporations, who have regular income, and who owe less than a certain amount of debt in certain categories.

Unsecured debt is debt without security, or collateral, that the creditor can take if you do not pay.

You finance a car, the credit union lends you the money, they are on the title as first secured party. You cannot sell the car without the credit union releasing their lien, that is, signing off on the title.

The credit union has a secured debt.

You buy a house with mortgage money, lent by someone. They record their interest, a lien on your house, with the register of deeds.

Or, you get a home equity loan, borrow money against the house, or re-finance. Your house is collateral, or security, for the debt.

The bankruptcy code (11 United States Code 506) defines secured/unsecured status of a debt.

A debt is a secured debt only up to the value of the collateral, say, your house.

So, if your house is worth $150,000, and you have mortgages on it that total $400,000, for bankruptcy eligibility purposes you have $150,000 of secured debt, and $250,000 of unsecured debt.

The total mortgage debt is undersecured, not enough security to cover the debt owed if the mortgage company takes the house back.

This is true no matter what your house was worth when you bought it, or re-financed and got the mortgage.

If you have $100,000 of credit card debt, that is added to the $250,000 unsecured mortgage debt, and you owe $350,000 unsecured debt, and are over the limit. (see In re Soderlund, 236 B.R. 971 (9th Cir. BAP 1999))

So, if you file a Chapter 13, the trustee, or a creditor, will most likely file a motion to dismiss your case, which the bankruptcy court must grant.

But, you can still file a payment plan bankruptcy, just not a Chapter 13 bankruptcy.

You have to file a Chapter 11, which will cost you more money, but does have more flexibility for you, as you can see by reading other Chapter 11 posts on this site

You Mean I Owe Too Much To File Chapter 13?

I Am A Failure If I File Bankruptcy

Kurt O'Keefe — Fri, 22 Jan 2010 15:07:12 +0000

No, you are not.

Bankruptcy is, and should be, a last resort.

The giant banks and mortgage companies that, with their politician friends, brought about the worldwide financial crisis, did not file bankruptcy themselves because the politicians they bought bailed them out.

They should be criminally prosecuted, but, the politicians are in charge of that, so, guess what?

Big time mortgage crooks are not being chased.

Consumers? Let them eat cake!

So, jobs out, income down, bankruptcy filings go up.

I see my role as, advising you to get the facts, how much are you making, what are your living expenses each month.

If there is money there to pay creditors, fine, you can do that in a Chapter 13 case and get the creditors off your back.

If not, you can file chapter 7.

If you do not file chapter 7, what is your plan for dealing with the creditors?

The Constitution requires that Congress establish uniform laws of bankruptcy, and the Biblical bankruptcy references are in another page on this site.

Only a con man feels good about filing bankruptcy.

And, if you file and discharge your debts, and come into money later, you are free to pay anyone you want!

But, if the choice now is between feeding the kids, and helping VISA make even more money, well . . .

I Am A Failure If I File Bankruptcy

Stop Paying Credit Cards?

Kurt O'Keefe — Mon, 18 Jan 2010 13:33:55 +0000

Fox News has a guest, Bill Bartman, who advises that you STOP paying your credit cards, in some situations.

Bartman interview on Fox News

His first point is, the big national credit card companies all sell their bad debts.

This is true, he says after 6 months of no payments, but I cannot verify that, the agreements are different.

What the big banks have decided is, at some point, it is not worth it to them to chase bad debt.

Once you file for bankruptcy, they sell your debt, per their standard agreement with LVNV funding or Sherman Acquisition or whoever, for pennies on the dollar. The bank closes its file.

The bottom feeding debt buying company files a proof of claim in the bankruptcy court, betting that overall, they will collect more on their claims than they paid to buy the debts.

Outside of bankruptcy, I am not so sure.

They have their own in-house collection people. Then, at some point, they hire collection agencies.

These third party collectors work on a contingency fee, that is, they keep a percentage of what they collect. If they collect nothing, they keep nothing.

If that does not work for the bank/credit card company, they can sue, but that means paying court fees and process servers, good money after bad.

Or, they sell the debt, keep that money, and close their file.

Like any venture, there is no guaranteed profit in the debt buying business either, as one of the big debt collection firms just went belly up.

As I always say, step one, figure out your future monthly income and expenses, your monthly budget.

I know this involves some guesswork, but there is no way to plan for the future without starting with the facts, how much are you making, and what does it cost you to live, not counting credit cards.

Bankruptcy is, and should be, a last resort.

But, if you do not have the income to pay the cards, should you cash in retirement accounts, take food out of your children’s mouths, be in a position to not be able to help them with college expenses?

Not my job to tell people that they should file bankruptcy, just to urge you to get the facts of your situation, your monthly budget, what are the debts, the monthly payments on them, what can you really afford at the end of the month.

Then I can tell you how you would fit in a Chapter 7 or Chapter 13 bankruptcy.

Stop Paying Credit Cards?

Foreclosure Crisis Continuing

Kurt O'Keefe — Thu, 14 Jan 2010 18:32:50 +0000

American homeowners now $745 billion underwater on their mortgages

according to First American CoreLogic.

Over 2.8 million homes foreclosed in 2009, millions of homes lost.

The trend? Bound to get even worse. Record high default rate now, as over 13.1% of homeowners are behind on their mortgage payments.

Why? More ARMs (Adjustable Rate Mortgages) resetting this year and next, with teaser rates ending, payments will increase, more people fall behind, more, mortgage defaults
Not to mention the interest only mortgages, which are prime or Alt-A, not sub-prime, which switch over to an amortized payment, over $47 billion in the next year, more than $80 billion in the next two years.

Mortgage payments will go up 15%, more if interest rates go higher. And there’s no room for rates to go lower.

And over 60% of the modifications actually agreed to by our mortgage company friends since October 1, 2008, are in default.

Government’s solution? Hey, if we pay the banks some of their losses, maybe they will finally start to write down principal balances.

Only 21,000 of the loans modified in the third quarter of 2009 included principal writedowns, or deferrals.

My guess, more deferrals than actual writedowns. One reason, investors are suing when principal is written off.

What good does a deferral do for the homeowner?

My favorite quote in the linked to Business Week story; “Mark Zandi, the chief economist for Moody’s Economy.com, who has testified before Congress on housing issues, proposes that banks receive a federal match of $1 for every $2 in principal reductions they offer to homeowners who were victims of predatory lending practices.”

So, let’s get this straight, mortgage company breaks the law, lends money it should not, probably cheating the homeowner.

Homeowner now stuck in home worth less then is owed, with unaffordable payments.

Remedy?

Another bailout for the crooked mortgage companies.

Well, they did spend enough of their ill gotten gains to buy both political parties, as each has supported TARP and further bailouts that have insulated the mortgage and banking companies from the consequences of their own actions, at the expense of you and me, the taxpayer.

I say, let them eat cake!

Or something!

Just not an open credit line to the U. S. Treasury.

Foreclosures And Bankruptcy

Kurt O'Keefe — Tue, 29 Dec 2009 13:09:34 +0000

Mortgage delinquencies, people behind at least 3 months on their mortgage payment, continued to climb according to Fannie Mae.

The Calculated Risk blog reports the results, with a graph that points to nothing but trouble for homeowners, the mortgage delinquency rate having more than doubled over last year, and still going up.

More delinquencies, means more foreclosures, means more houses for sale, increased supply, means lower prices for all houses, putting more homes underwater, in that they will be worth less than what is owed on them, leading to, more foreclosures.

And, why pay full price for a new home, when so many homes are effectively on sale at discounted prices, having been foreclosed?

New home sales down, also bad for the economy, and j0bs, which people need so they can make their house payments and avoid foreclosure.

At least some commentators, Wenli Li and Michelle J. White, believe the 2005 bankruptcy law reforms also increased foreclosures.

Chapter 13 bankruptcy does stop foreclosure, but does not force changes in the first mortgage on a home you live in.

So, if your home is worth a lot less than you owe on the first mortgage, and you have no second mortgage, might not make sense to file that Chapter 13 bankruptcy to stop a foreclosure and catch up on the missed payments.

Now, if there is a second, or second and third mortgage, on your home, and, your home is worth less than what is owed on the first mortgage, in Chapter 13 you can lien strip, or avoid, that second or second and third mortgage.

Then, Chapter 13 might make sense.

As always, get the facts: what is your house worth, that is, what would someone pay you for it, right now, without painting it or fixing it up in any way.

How much do you owe, total, on your mortgages?

And, make a realistic monthly budget of what your income and necessary living expenses are, to see what is left for mortgage payments.

And consult an experienced attorney.

Foreclosures and Bankruptcy

How Is The Government Mortgage Modification Program Working?

Kurt O'Keefe — Mon, 14 Dec 2009 20:59:38 +0000

How are the government encouraged mortgage modifications going? Are mortgage modifications working? What effect is the HAMP program having on foreclosures?

Not so good.

Paperwork problems?

As I hear all the time, only one third of homeowners trying to get HAMP relief have sent back the paperwork to get a mortgage modification.

Of course, what my clients tell me is, what they are requested to send keeps changing.

And the mortgage companies blame, who else? Their customers!

Banks who threw mortgage money out the window to anyone who could fog a mirror now claim people cannot get the right mortgage modification forms back to them in time.

Yeah, right.

On top of that, even though very few get a mortgage modification, many of them are already behind again.

HAMP program not performing as we were told it would when announced, with the usual fanfare.

As the “solution” founders, the problem gets worse.

More foreclosures coming.

Which means, more pressure on home prices, which will continue to go down, which means more homes worth less than what is owed on them, which means more foreclosures . . . .

The short answer to my question: What Is Happening With Mortgage Modifications?

NOT ENOUGH!

Again and again, I keep saying, judicial mortgage modification, is the best thing the government can do now, that it has gotten us into this mess.

Judicial Mortgage Modification Lives! Nope, Voted Down Again

Kurt O'Keefe — Thu, 10 Dec 2009 19:32:38 +0000

The House Rules Committee just minutes ago agreed to allow the bankruptcy modification amendment to be considered on the House floor as an amendment to the broader financial services reform bill AS EARLY AS THIS AFTERNOON!!

1. Phone toll free at: 877.354.4958

2. Put in your zip code

3. When you reach the receptionist:

State your name
Say that you are a constituent
Ask the Representative to vote FOR the Conyers-Turner-Lofgren amendment (#201) to the Financial Services Reform bill.
This amendment will cost taxpayers NOTHING and will save millions of homes from foreclosure

Judicial Mortgage Modification Lives!