Filing Bankruptcy on Private Student Loans by xbs18159


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									                                                     The Senior Citizens Legal Advocacy Program

The Legal Aid Society of Orange County, 2101 N. Tustin Ave., Santa Ana, CA 92705; or to reach the Hotline, call (800) 834-5001 or (714) 571-5200

I might need to file bankruptcy—
                                                                  TOPICS COVERED IN THIS ARTICLE
what do I need to know?
Seniors have special concerns when considering
bankruptcy. For example, seniors are often on                       1    I might need to file bankruptcy—what do I need
fixed incomes and can’t afford to make increased                             to know?
monthly payments in order to repay debts over                       2    What is bankruptcy?
time. If they are pressured to enter into payment                   2    When should I consider filing?
plans in lieu of bankruptcy, it can lead to                         2    What are my alternatives to filing?
confusion or unsustainable promises.                                3    What are the different types of bankruptcy to
For seniors with medical bills that will keep piling                4    Will I have to go to court?
up, bankruptcy is only a limited option.                            4    What does it cost to file bankruptcy?
Bankruptcy may get rid of current bills and credit                  4    Will Chapter 7 wipe out all my debts?
card debts, but seniors might then be left with no                  4    Will I get to keep any property?
credit cards or money to live on with new and                       5    When should I use Chapter 13 instead?
continuing medical bills to pay.                                    6    Can I file without an attorney? How can I find
                                                                             an attorney?
In addition, seniors may be more likely to have

The Senior Citizens Legal Advocacy Program
and the City of Mission Viejo                                    moral objections to filing bankruptcy. This can add
                                                                 to the anxiety they feel when facing creditor
The Senior Citizens Legal Advocacy Program                       collection demands. When seniors learn more about
(SCLAP) is part of the Legal Aid Society of Orange               the process and the benefits of bankruptcy, many of
County (LASOC), a non-profit corporation funded                  these anxieties diminish. Seniors should also
by public and private sources.                                   consider that a bankruptcy means that most debts
                                                                 can no longer be legally enforced, but nothing will
SCLAP provides services to Orange County
residents age 60 and over and is funded in part
                                                                 prevent them from voluntarily repaying a debt later
through the federal Older Americans Act, as                      if they so choose.
allocated by the Orange County Board of
Supervisors.                                                     Some seniors may find that because they have
This fact sheet is part of a program funded by a                 limited assets and protected income (e.g., “exempt”
grant from the City of Mission Viejo. Points of view             Social Security or similar pension income), they
opinions are entirely those of SCLAP.                            won’t need to file bankruptcy. For these seniors,
Page 2                                                                                Bankruptcy

                                                         In bankruptcy, debts will be sorted out according
                                                         to type. Some debts can be “discharged” and a
      “Some seniors may find that                        debtor will be freed from the obligation to pay
     because they have limited assets                    them back. Some debts will still require payment
      and protected income… they                         despite a bankruptcy filing (e.g., certain tax debts,
                                                         student loans or Social Security overpayments)
     won’t need to file bankruptcy.”                     and these debts are referred to as

letting creditors sue them and get judgments that
                                                         When should I consider filing?
are literally uncollectible may be a viable option to
                                                         The decision to file bankruptcy depends on a
                                                         debtor’s particular circumstances such as the types
                                                         of debt and the amount and type of property
Some debts will have to be paid and kept
                                                         owned. Before filing bankruptcy, a debtor will
current—mortgages on real estate or secured debts
                                                         have to complete credit counseling with a program
such as car loans or loans on mobile homes—or
                                                         approved by the U.S. Trustee (e.g., in Orange
those assets will have to be forfeited.
                                                         County, many people use Consumer Credit
Nevertheless, there are “exemptions” available in
                                                         Counseling Service of Orange County, a nonprofit
bankruptcy that may allow debtors to keep much
of their property—including protection for a
certain amount of “equity” in a home, mobile
                                                         Credit counseling is required even if there is no
home or car.
                                                         chance of setting up a payment plan with your
                                                         creditors. However, some credit counselors may
Seniors should investigate bankruptcy as an option
                                                         offer Debt Management Plans as a way of
without losing sight of these and other special
                                                         avoiding bankruptcy. This may be a viable
concerns. In some cases bankruptcy can offer
                                                         alternative for some people but often does not
significant relief from pressing debts while
                                                         work for seniors on fixed incomes. In addition,
allowing seniors to keep most or all of their
                                                         debtors will be required after filing bankruptcy to
                                                         complete a personal financial management course
                                                         before receiving a “discharge”.
What is bankruptcy?
Bankruptcy is a federal court proceeding that
                                                         What are my alternatives to filing?
immediately stops creditors from taking actions to
                                                         It is a good idea to meet with an attorney to get
collect debts. It gives debtors the time and the
                                                         legal advice about whether bankruptcy is your best
legal means to get a fresh financial start.
                                                         option. Credit counselors cannot give you legal
                                                         advice and your particular circumstances need to
When a bankruptcy is filed it immediately stops all
                                                         be considered by an attorney before you decide to
debt collection activity such as foreclosures,
                                                         file bankruptcy.
repossessions, utility shut-offs, lawsuits, levies and
wage garnishments. The bankruptcy court will
                                                         Often an alternative to filing bankruptcy is some
supervise which, if any, of these collection
                                                         kind of repayment plan (Debt Management Plan)
activities may continue.
                                                         with your creditors and these plans are frequently
Bankruptcy                                                                                  Page 3

suggested by credit counselors. You should get
this advice from a lawyer, however, because credit           “In many Chapter 7 cases,
counselors often have a vested interest in getting
you signed up for a repayment plan outside of
                                                            debtors end up keeping all of
bankruptcy.                                               their property unless it secures a
                                                          loan.... If your property secures
Filing bankruptcy may not always solve the
                                                          a loan that you can not afford to
problems of older consumers. If you are on a
fixed income and have medical bills that will keep         pay, you will have to forfeit the
accruing in the future, the debt will pile up again                  property….”
and you won’t be able to file Chapter 7 again for 8
                                                      U.S. Trustee’s Program. They maintain a list on
One option that older consumers should consider,      their website of approved programs. One of these
with advice from a lawyer, is to simply let your      approved programs is the Consumer Credit
creditors sue you. This sounds bad, but it could      Counseling Service of Orange County (CCCS-
suit your circumstances better than you think.        OC).

If you don’t own real property or other valuable      A typical credit counseling session lasts about an
personal property, it may be very difficult, if not   hour or so and can be done in person, on the phone
impossible, for a creditor to recover any money       or online. These credit counselors charge a
from you even if they get a judgment against you.     modest fee for their services, but if you cannot
Lawyers sometimes use the term “judgment proof”       afford to pay you may request a fee waiver before
to describe clients that may simply ignore lawsuits   the counseling begins.
and judgments.
                                                      If you file bankruptcy you will also have to
You could be judgment proof, especially if you        complete a “debtor education course” before your
own no significant property and your only source      bankruptcy case can be completed. This course
of income is “exempt” (protected from levy or         may take a little longer (about two hours) and must
garnishment) such as Social Security or some          also be done by an “approved” counseling service.
pension payments. It is very important to get legal
advice about these issues so that you understand
all of your rights and any alternatives to
                                                      What are the different types of
bankruptcy that you might have.                       bankruptcy to consider?

Do I need credit counseling before I                  Most consumers file under either Chapter 7 or
                                                      Chapter 13.
file bankruptcy?
                                                      Chapter 7 is commonly known as “liquidation” or
Yes. If you plan to file bankruptcy, you must get     “straight bankruptcy”. The primary benefit is a
credit counseling from a government-approved          “discharge” of your debts, although some limited
organization within six months before your filing     kinds of debts are not dischargeable (see below,
date. When you file, you must include a certificate   “Will Chapter 7 wipe out all my debts?”). Once
of credit counseling completion.                      debts are discharged, the creditors who were owed
                                                      the money are porhitied from suing or attempting
This credit counseling must be done by counselors     to collect the debts in the future.
that are “approved” by the Department of Justice’s
Page 4                                                                                  Bankruptcy

                                                        You will have to attend a “meeting of creditors”
In Chapter 7, some of your property may be              conducted by your bankruptcy Trustee. This is
“exempt” and you will be allowed to keep it (see        not a court hearing. Your creditors are notified
below, “Will I get to keep any property?”).             and allowed to attend if they choose. Typically,
Property that is not “exempt” will be sold by a         this meeting is short. You are placed under oath
Trustee who “liquidates” the property to pay            by the Trustee and asked a few simple form-like
creditors.                                              questions about your bankruptcy papers and your
                                                        financial situation.
In many Chapter 7 cases, debtors end up keeping
all of their property unless it secures a loan          In most Chapter 7 cases, you will only have to
(mortgages or car loans are examples of “secured        attend this “meeting of creditors” and you won’t
loans”). If your property secures a loan that you       need to go to court. If complications arise in your
can not afford to pay, you will have to forfeit the     case, you may have to appear before a judge in
property and Chapter 7 will not change this             court. If so, you will receive notice of the date
outcome.                                                and time of the hearing from the court or from
                                                        your attorney.
Chapter 13 is for consumers that can afford to
establish a payment plan in order to pay some or        What does it cost to file
all of their debts over a period of years using their
current income.                                         bankruptcy?

Chapter 13 is most often used by consumers that         The court filing fee is $299 to file under Chapter
own a home or other valuable property that they         7 and $274 to file under Chapter 13. This fee is
wish to keep despite having money problems. If          paid directly to the bankruptcy court and does not
this applies to you, and if you have income from        include any fees charged by your attorney. There
which you can afford to make regular, scheduled         is a procedure available that allows you to pay
payments plus something extra to pay back               this filing fee in installments.
delinquencies over time, then Chapter 13 could be
right for you.                                          In some limited cases, the court has the power to
                                                        waive this filing fee for a Chapter 7 in its entirety.
Prior to actually filing a petition either under        But to get such a waiver, you will first have to
Chapter 7 or 13, you will have to complete a            meet certain limited income requirements. The
credit and budget counseling program that may           filing fee for a Chapter 13 may not be waived, but
help in determining whether you would qualify           it can be paid in installments.
for a payment plan under Chapter 13.
                                                        Will Chapter 7 wipe out all my
In 2005, the bankruptcy law was changed to              debts?
require a new “means test” that could force higher
income seniors into Chapter 13. This test sets          Chapter 7 will eliminate all your debts except
standards meant to determine if individuals have a      those that the law defines as “nondischargeable”.
certain amount left over after paying all their         Debts that are automatically considered
monthly bills which could be paid to unsecured          “nondischargeable” include child support,
creditors over time. Despite this, most consumers       alimony, fines, most income taxes, most student
still qualify for Chapter 7.                            loan obligations and government benefit
Will I have to go to Court?
                                                        Certain      other      debts      may       become
Bankruptcy                                                                                    Page 5

“nondischargeable” if the individual creditors ask     keep—
the court for a “determination” that their
particular debts should not be discharged. But                 ●       $150,000 equity in your home if
these types of debts are strictly limited by           you are age 65 or older or mentally or physically
definition. These include debts incurred by fraud      disabled or if you are age 55 and have very
or debts resulting from willful and malicious          limited income. For most others the exemption is
harm.                                                  $50,000 equity for an individual, $75,000 for a
                                                       family. The “equity” protected as exempt refers
In addition to “nondischargeable” debts, Chapter       to the value over and above what is owed on the
7 will not provide significant protection from         property in mortgages or other voluntary liens.
“secured debts.” Chapter 7 will temporarily stop               ●       $2,550 equity in a motor vehicle
a foreclosure on real estate or the repossession of    (or the aggregate equity in more than one
a car, but ultimately, you will have to continue       vehicle).
making payments on the underlying debts (the                   ●       Ordinary and necessary household
mortgage or the car loan) if you intend to keep the    furnishings,     appliances,    wearing     apparel,
property.                                              provisions and other personal effects.
                                                               ●       Health aids, prosthetic and
In the case of “secured debts”, if you intend to       orthopedic appliances.
forfeit the secured property (i.e., let the creditor           ●       $6,750 in jewelry, heirlooms, and
foreclose on it or repossess it), Chapter 7 does       works of art.
“discharge” or eliminate the debt. You will be                 ●       $6,750 in tools and other items that
freed from any future obligation to make               you need for your work (or up to $12,150 for
payments on the loan or the mortgage.                  items used by both spouses who do the same
Will I get to keep any property?                               ●       $2,700 each in a bank account in
                                                       which your Social Security payments have been
The bankruptcy laws generally allow you to keep        directly deposited ($4,050 if the one payment is
all property that is “exempt” under the law that       directly deposited for the benefit of both spouses).
applies in your state. You will need to get                    ●       Life insurance policies with a cash
specific legal advice about which “exemptions”         value of up to $10,775 each. Married couples may
apply to your property and in what amounts. The        combine this exemption; it doesn't matter whether
information provided below is limited in nature        the policies belong to you, your spouse or both of
and the legal rules that apply are complex and         you.
often subject to interpretation.                               ●       Amounts held in most public and
                                                       private retirement plans.
As a general rule, most debtors find that they get
to keep virtually all of their personal property       The above list is not intended to be complete and
(excluding very valuable items) and a home,            is only provided for general information purposes.
assuming there is not a great deal of “equity” in      You will need to consult your lawyer to determine
the home (see below). When you file bankruptcy,        which exemptions may apply to your property
exemptions must be specifically “claimed” and          and under what circumstances.
listed on a schedule that is filed with your

If California “exemptions” apply to you, then
among other things you may be allowed to
Page 6                                                                           Bankruptcy

When should I use Chapter 13                        The Legal Aid Society of Orange County
instead?                                            (LASOC) and the Senior Citizens Legal
                                                    Advocacy Program (SCLAP) recommend that
You may choose to file Chapter 13 if you have       you contact the Legal Resolutions Center at 1-
excess income over your reasonable expenses         714-571-5204 where you can get access to a
and if you are willing to commit that excess        State Bar Certified referral service that will direct
income to repay some or all of your debts over a    you to a lawyer.
period of 3 to 5 years. A significant benefit to
Chapter 13 is that it allows you to keep valuable   LASOC also provides limited access to a self-
property that is not “exempt”—like a home or        help “Bankruptcy Clinic” that will assist some
car with lots of equity—but you must be able to     qualified debtors to prepare the forms and
afford the payments required under a Chapter 13     documents necessary to file their own Chapter 7
plan.                                               bankruptcy petitions “in pro per” (without legal
                                                    representation). However, access to this Clinic is
You might consider filing Chapter 13 if you have    subject to strict limitations. Admittance to the
regular income and you—                             Clinic is only possible in cases that present no
                                                    complications and are considered “no asset
        ●       own a home with equity but are in   cases” (no real estate, no other significant assets,
danger of losing it due to foreclosure.             no unusual claims or problems).
        ●       got behind on debt or credit card
payments, but can catch up if given some time.      To be considered for a spot in this Clinic, you
        ●       have other valuable property that   must contact our Hotline (1-800-834-5001 or 1-
is not “exempt”, but you can afford to pay your     714-571-5200) to determine if you are eligible.
creditors over time.                                If you are considering bankruptcy, you should
                                                    make a list of all of your creditors and your debts
A payment plan may be used to “cure” or pay         prior to calling the hotline. Once you are
back delinquencies on a home mortgage even if       determined to be eligible to participate in the
you are in foreclosure. However, under this type    Clinic, you will be contacted and given an
of plan, you must be able to pay all current        appointment for the next available Clinic.
mortgage payments (from the date of the
bankruptcy petition) plus an additional amount to
“cure” the defaulted payments over an allowed
time period.

Can I file without an attorney?
How do I find an attorney?
It is possible for some people to file bankruptcy
without an attorney, but most people will need
some legal assistance. The paper forms are
complicated and you may lose valuable property
rights or other rights if you don’t know the law.

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