Student Loan Changes

From: http://articles.moneycentral.msn.com/CollegeAndFamily/SavingForCollege/big-changes-ahead-for-student-loans.aspx

On July 21, the House Committee on Education and Labor began marking up a bill, introduced by Rep. George Miller, D-Calif., that seeks to eliminate government-subsidized private student lending and replace it with direct loans to students through the Department of Education.

"This is the biggest change in federal loans for higher education since 1965, when the original program was created," says Terry Hartle, senior vice president at the American Council on Education.

About damn time. Private-lender student loans are one of the worst deals one can get into when paying for education. I had to take out just one private loan - to cover BARBRI and summer school. The interest rate is 3% points higher than my federal loans. When I was unemployed for 6 months following graduation, all it took was a a short form and a signature to get my federal loans deferred. For my private loans, the best Sallie Mae could offer was a 3 month forebearance for a $50 fee.

I had better help from my credit card companies during my unemployment period. The private loan provides, like Sallie Mae and NelNet, use the student loan protections (non-dischargeability in bankruptcy, ease to obtain, and relatively low interest rates) to hook students, who in a lot of cases have the choice of an a private loan or no education, if they don't satisfy the FAFSA requirements. Then, they can use their own policies to fiddle with the interest rates, charge late fees, and have tough deferment/forbearance/forgiveness policies. They aren't even eligible for the Income Contingent Repayment options or the federal loan forgiveness programs for public service. And you can't consolidate them through the federal loan consolidation programs.

So, to recap - all the drawbacks for the borrower, and none of the risks for the creditor.

Letting the Fed handle student loans just makes sense - their Direct Loan program is great ($93,000 @ $370 a month @ 4.75% fixed, thanks to consolidation) for students, generates a minimal but still positive return for the government (i.e., it more or less pays for itself eventually), and can provide huge benefits by encouraging public service through forgiveness programs. And it lets students pick occupations that require major education but have minimal income, with ICR options that forgive the loans after 20 years of repayment.

In conclusion, here's to Sallie Mae - and to the hope that you die unloved, unmourned, and soon to be forgotten. And keep cashing my $200 a month checks.

Quasi-Obligatory Commentary

From http://www.bloomberg.com/apps/news?pid=20601087&sid=acQvgRoLQmXQ:

"More than 126,000 consumers filed for bankruptcy in the U.S. last month, 34 percent more than in July 2008, the ABI said in its latest report on Aug. 4. The increase came after a 36.5 percent rise in personal bankruptcies nationwide in the first six months, to 675,351, according to the ABI research group, which interprets data collected by the National Bankruptcy Research Center."

and:

"Credit Card Losses

JPMorgan said losses in its Chase credit-card portfolio may be 10 percent next quarter and will be “highly dependent” on unemployment after that. Losses for cards issued by Washington Mutual, which the bank acquired in September, may reach 24 percent by the end of the year, the company said.

JPMorgan’s credit cards lost $672 million, compared with income of $250 million in the second quarter last year. Home- equity charge-offs climbed to $1.3 billion, or 4.61 percent. Prime mortgage defaults rose to $481 million, or 3.07 percent, from $104 million, or 1.08 percent a year earlier."

Too bad the article failes to mention how Chase and most of the other lenders are at least partially, and often majorly, responsible for the bankruptcies themselves. Time and again I get client whose almost sole reason for filing bankruptcy is their credit card rates getting jack to 30%. I have seen debtors who have struggled along for years, through unemployment and famine, after tapping their 401(k)'s and IRA's dry, just to make their minimum payments. Then they watch their minimum payments triple and their interest rates quadruple.

Chase could very well be posting profits, or at least much smaller losses, if it had left the interest rates and minimum payments where they were. Instead, the screw around and drop some more straw on the camel's back, and the next step is a visit to my office.

Thank you Chase; you are one of the best feeders for my services. I love nothing better than adding you to Schedule F with a big fat 5 or 6 figure number in the amount column. You bring it down upon yourself by biting too hard on the teat of the honest but unfortunate debtor.

They even cut my limit and boosted my rate, after I paid off my balance from college. I was using the card for gasoline and whatnot, paying it off every month, and they cut my limit, 6 months after I paid off my $2,000 college indiscretion balance. I was only using it to keep it active and boost my credit score. Their reason: "Not paying bankcards as agreed," despite the fact that my balances are minimal and my monthly payments are quadruple the minimums.

Now? I'll just let it languish with a zero balance until they close it. I'll stick with my Sears Mastercard (they keep bumping my limit) and my credit union credit card (I love my credit union too) - the folks that actually treat me right.

The horrible downside is that, in the next few years, we'll see another bankruptcy reform act, which will further tighten the screws on the already completely-screwed, force more people into nearly impossible Ch. 13 repayment plans (100% of my disposable income for five years? God forbid I need a new alternator), all on the justification that too many debtors are filing bankruptcy after Chase (and others) gave them too much credit, and then turned around and screwed them by jacking the rates and payments.

An Apt Summary of Contested Divorce Cases

From the Onion: http://www.theonion.com/content/opinion/the_divorce_was_unfortunate_but

"There's no reason divorce has to be a terrible experience. What's important is that we both know in our heart of hearts that our divorce was as bad as it could be. It's a comfort to think that the utter dissolution of our marriage was as ugly as humanly possible, without resorting to actual, physical violence. After all, we're adults, right? There's no reason we shouldn't handle this matter with the maturity of two screaming, biting five-year-olds.

If not for us, then for our children. Or should I say your child and my child, now that the custody battles are finally settled?

Well, my darling ex-husband, it has certainly been memorable being your wife, your lover, and the counterclaimant in several vicious lawsuits. Even though our marriage has come to an end in the most spiteful manner possible, I hope that when you think of me, your once-wife, and the life we shared together, some part of you will always know that you can suck my dick, you two-faced, no-good fuckhead. I hope you burn in hell."

Automatic Stay Violations and Sanctions

Alternative title: Stupid Creditors

Today I started work on yet another motion for sanctions for violations of the automatic stay. For those unfamiliar with the intimacies of bankruptcy law, the primary protection that bankruptcy provides is the Automatic Stay, 11 U.S.C. 362. Under Section 362, once a debtor files for bankruptcy, creditors are prohibited from taking basically any collection action against them. That code section triggers automatically - and it is powerful. It will stop foreclosures, repossession, creditor calls, lawsuits, garnishments . . . basically every sort of collection activity.

Violation of the stay is pretty egregious. One case involved a car dealer who repossessed a vehicle despite having sufficient notice of the bankruptcy. Others involve creditors continuing to place collection calls and so forth.

As an attorney, I understand that things can slip through the cracks. The first step is almost always a letter, fax, or phone call to let the creditor know that is going on. In most cases, they are quick to acknowledge the issue and cease their actions.

My favorites are the ones that don't. Sanction awards for continuing violation of the stay can be pretty harsh. Awards of attorney's fees and even punitive damages are common. I am definitely looking forward to the results of these motions. Most of the time debtors are on the losing side - so payback can be a b!tch.

The Transient Nature of Bankruptcy

My last post was a bit of a client-rant; I should clarify a little. Not all clients are unpleasant. Some are very understanding, very helpful, and generally on top of things. Consumer bankruptcy requires very little on the part of the debtors - some pay stubs, some tax returns, a couple of credit counseling classes, and occasionally a market analysis or appraisal.

Some clients come prepared - printouts, spreadsheets, credit reports, paystubs, taxes, and tons of other information. These are my favorite clients. Their efforts make my life easier and makes their bankruptcy run all the smoother.

Others have no idea what their financial situation is, and more often than not they blame us for that lack of knowledge.

Some clients understand that I have 10 files on my desk, all of which need attention, and that they are #11. Others expect to be dealt with immediately, even for small things of little or no consequence.

Today, I sent out the discharge papers for one of my favorite clients, one of the early good ones. It makes me a little sad, in a way: no more patient explanations of the mysteries of the bankruptcy code, no more thoughtful questions, and nothing further with a good guy who ran into some terrible financial difficulties.

Bankruptcy is ultimately a transient operation; almost no repeat business, and a constant need for new clients. Each month we open 60 to 100 new files, and close almost as many. Sixty new people, starting their short transition though my sphere of responsibility, and 60 more passing on into the wild green yonder of post-bankruptcy life.

Psycho Clients

For some clients, no matter how well you treat them, or how honest you are with them, they still do nothing but complain and moan and whine throughout the entire process. I have had days when I have been both complemented on the ease of access to attorneys - it is relatively easy to speak directly to an attorney at our firm - and lambasted for not working quick enough.

The bottom line is that there are simply a lot of very, very stupid people out there, who expect an attorney to magically wave his wand and fix it all. The reality though is that it takes time and money - this is a business for us, after all.

So here, in my quasi-anonymity, I will rant regarding the general state of my client base. At the end of the day, no matter how you slice it, almost everyone who comes to see me is a debtor who can't manage money, who can't manage credit, and who really can't manage their own impulsive habits. As much as I love working with people directly (and I truly do), there are days when some or all of my clients go die in a fire and I would calmly mark the file "closed."

So, to all those potential clients out there - remember, attorneys are people, we do this for a living, and we deserve some f*cking respect.

Not Forgotten . . .

My life has been very busy lately - I have recently moved, and work has been picking up, so I have not had a lot of time to post, despite a lot of great topics coming to mind. I am going to make an effort to start posting more, with a focus on bankruptcy topics, hopefully towards making this blog a half-way decent place to post my thoughts and insights into consumer bankruptcy.

Stay tuned for more information.