Portland Bankruptcy Law Group

Can I Keep My Car or Truck If I File a “Straight” Chapter 7 Bankruptcy?

posted on 11.25 @ 2:00 am

So you’ve heard that in a regular Chapter 7 bankruptcy most people can keep their vehicle, but you are worried about whether you’d be able to keep yours. Here’s how this works.

The law protects, or “exempts,” certain things you own so that your creditors can’t take them from you. The idea is that when you file a bankruptcy to get a “fresh financial start,” you ought to be able to keep some basic assets, including a vehicle.

But this protection for your vehicle, the “vehicle exemption,” is capped in Oregon at $3,000 per person. That may not sound like much—try finding a reliable vehicle these days for that price! But it protects more than you might think.

If you owe on the vehicle (and the lender is a lien holder on the vehicle’s title, as is usually the case), that $3,000 exemption applies not to the full value of the vehicle, but only to its equity. Equity is the value you have in your vehicle AFTER you subtract the loan balance from the vehicle’s full value. Unless you are close to paying off the vehicle, most likely you don’t have much, if any, equity in the vehicle.
If you own two cars, but one has no equity because you owe on it more than it’s worth, you can apply your exemption to the one that has equity, and potentially keep both vehicles.
If you are married and together you own only one vehicle, you can combine each of your $3,000 vehicle exemptions, or a total of $6,000, applying that combined exemption to your one vehicle.
If you are married and own two vehicles, but one of them has no equity because you owe on it more than it’s worth, you can combine and apply your two exemptions to the other vehicle.
If you share ownership of a vehicle with someone else—a spouse, someone you live with but aren’t married to, or anyone else—and you file a bankruptcy by yourself, you can apply your $3,000 exemption to your share of the vehicle.

And maybe most important, the Chapter 7 trustees (whose job is to collect from you and distribute to your creditors any assets that are not protected by exemptions) are generally not super anxious to grab vehicles from you if the value or equity is just a little over the $3,000 mark. That’s not because they are being kind to you. They simply don’t want to go through a bunch of work getting the vehicle, selling it, often paying a sales commission, paying you the $3,000 exempt amount, and then figuring out how to divvy up the sale proceeds among your creditors (after paying themselves the trustee fee), If in the end the amount filtering down to your creditors is so small that it’s not worth all this effort.

This doesn’t mean that, if your vehicle is worth more or has more equity than the exemption, the trustee is not going to take it from you and sell it. But most of the time if the value is truly just a few hundred dollars more than the exemption, the trustee is not going to bother grabbing it.

Portland Bankruptcy Law Group has the experience and knowledge to handle your case. Our bankruptcy attorneys are extremely familiar with and are well versed in all aspects of bankruptcy law. Contact us today!

Hardship Discharge of Student Loans

posted on 11.15 @ 5:50 pm

As of June 2010, for the first time the total amount of U.S. student loan debt exceeded total credit card debt. This partly reflects a historic decrease in credit card debt, which peaked about two years earlier. People are being more cautious about using their plastic, and credit card companies have been much more cautious about extending credit while cutting off credit for their ongoing customers.

But, while credit card debt has been creeping downward, student loan debt has been streaking upward. Out of a total of $830 billion in student loan debt, about $300 billion of that amount was signed up for in just the last four years.

What to do if you have too big a share of those billions in student loans? In our last blog we said that writing off student loans in a bankruptcy is very hard to do. We said that you can write off, or legally “discharge,” student loans only if you can show that making the payments would cause you an extreme hardship. The law calls it “undue hardship,” but the courts have interpreted those two words very strictly.

Specifically, to discharge student loans you need to meet each of these three separate conditions:

1^st, show that if you had to make the payments on the student loan, you would not be able to maintain even a minimal standard of living under your current income and expenses. The budgets generally used for this are extremely tight.

2^nd, give evidence that this extreme difficulty in repaying the student loan would likely stretch out over most of that loan’s repayment period. Since repayment periods often still have twenty years or more to go, any medical or employment situation that is not permanent is not usually enough to meet this condition.

3^rd, establish that you have made a meaningful effort at repaying the loan, or at least have sought to qualify for appropriate forbearances, consolidations, and administrative payment-reduction programs. In particular, you must have applied for a payment-reduction program beforehand, or this condition is usually not met.

Portland Bankruptcy Law Group has the experience and knowledge to handle your case. Our bankruptcy lawyers are extremely familiar with and are well versed in all aspects of bankruptcy law. Contact us today!

New Bills in Congress Would Allow Discharge of Private Student Loans

posted on @ 5:48 pm

Congress and the courts have over the years generally made it harder and harder for you to write off (“discharge”) student loans in bankruptcy. Most debts, such as credit cards, medical bills, old utilities and back rent, can be written off, or “discharged,” when you file a bankruptcy. But government-backed student loans almost never can. These can only be discharged if you prove extreme hardship, which is very hard to do. Most people don’t qualify. And it costs so much to try that in most cases the risk of not succeeding usually makes the attempt not worthwhile.

A few years ago Congress amended the bankruptcy laws in lots of major ways, mostly making it harder to file a bankruptcy and limiting the benefit to doing so. One of the amendments was to make private student loans just as difficult to discharge as government-backed ones. Overall, these private student loans make up only about 20% of all student loans, but that’s still about $170 billion. For many people it can amount to tens of thousands of dollars of student loan debt.

But then earlier this year some small steps were taken in the opposite direction. Bills were introduced in each of the houses of Congress which would again allow some private student loans (those not guaranteed by the state or federal government) to be discharged like most other debt, just like they used to be. The proposed bills are the Fairness for Struggling Students Act in the Senate, and the Private Loan Bankruptcy Fairness Act in the House of Representatives.

Here is what one of the sponsors of the House bill said in introducing the bill a few months ago:

Federal student loans offer certain protections to minimize the risk that a financially distressed debtor will need bankruptcy relief, whereas private student loans are not required to have, and often do not have, such consumer protections. For example, Federal loans have fixed interest rates, whereas private loans often have variable rates that can be as high as 19 percent. Unlike Federal loans, private loans have no limits on origination fees, which can be as high as 9.9 percent, with lenders often charging additional fees such as late fees or fees for any deferments or forbearance, and half of the private loans in one survey had no forbearance option at all. Federal loans also provide flexible options for distressed debtors, such as income-based repayment plans and partial or complete loan forgiveness in some circumstances, whereas private lenders are not required to offer such options. For these reasons, private loans should be dischargeable in bankruptcy.

Before the election a House subcommittees held a vote on its bill and passed it, sending it to the full judiciary committee for a vote. Unfortunately, it is now not likely that either of these bills will become law. But we will continue monitoring this to see what happens, so that we can use it for our clients if it does.

Bankruptcy Job Discrimination Is Illegal

posted on 11.02 @ 8:52 pm

In our last blog we covered the new Oregon Job Applicant Fairness Act, which made it illegal for most employers in Oregon to use a job applicant’s credit history in making hiring decisions. Besides this state law, there’s also a federal law, which means it is enforceable all over the country. Besides that, this federal law is better in a bunch of other ways. This blog shows you why.

Employment

A lot of our clients are unemployed. They ask us whether they can be denied employment if they file a bankruptcy. Many of our employed clients ask us whether they could lose their jobs if they file a bankruptcy.

The federal law makes it illegal for an employer to terminate your employment or to “discriminate with respect to [your] employment” IF the ONLY reason for treating you differently is that you:

1) filed a bankruptcy case, or

2) were insolvent (you owed more than you owned), or

3) did not pay a debt that is dischargeable (written-off) in your bankruptcy case.

So your employer cannot fire you or treat you differently simply because you filed a bankruptcy, or because you did not pay a debt that your bankruptcy forgave you from paying.

Applicable to All Employers

This federal law applies to all governmental employers—federal, state, county, city—and all private employers. The statute makes no exceptions, unlike Oregon’s new law which excludes from the law most banks and credit unions, and law enforcement and airport security employers.

License and Permits

The federal law adds a huge extra angle: governmental agencies are prohibited from denying, revoking, or suspending licenses, permits, or grants because of a bankruptcy, or because of an unpaid debt discharged in bankruptcy. This most commonly applies to your driver’s license, which the DMV would usually be able to revoke if you had a judgment against you for an unpaid debt for damages you caused in a vehicle accident. The discharge of this debt in bankruptcy prevents this loss of your drivers’ license.

This provision may also apply to professional licenses and other governmental permits and grants. Some other examples of what this important provision has been applied to include debtor’s rights to keep or receive their government contracts, school transcripts, public housing, utility service, and agricultural subsidies. If anything like this seems to apply to you, be sure to tell us about it so we can protect it for you.

Bankruptcy or Discharged Debt as the Sole Reason

The practical problem is that the federal law says that the forbidden behavior, like job discrimination, is only illegal if your bankruptcy or a discharged debt is the SOLE reason for that behavior. Of course this can be difficult to prove. In our experience, most employers do not want to risk a lawsuit and so tend to stay clear of violating this federal law. Plus, employers recognize that in this bad economy, more than usual, countless good people need to be filing bankruptcy through little or no fault of their own. An employer who does not understand this is losing out on a substantial part of the labor pool, besides violating the law.

Our Blog

Here’s what we have to say.

Can I Keep My Car or Truck If I File a “Straight” Chapter 7 Bankruptcy?

Hardship Discharge of Student Loans

New Bills in Congress Would Allow Discharge of Private Student Loans

Bankruptcy Job Discrimination Is Illegal