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Articles Posted in Debt Relief

The United States Bankruptcy Appellate Panel for the Eighth Circuit recently released a decision affirming a lower federal bankruptcy court’s decision permitting a bankruptcy debtor to discharge a debt he owed to a county jail for incarceration costs as part of his Chapter 7 bankruptcy. Representatives of the county to which the debt was owed appealed the bankruptcy court’s ruling, but the appellate panel’s decision favored the debtor, holding that federal bankruptcy law allows the discharge of the debts. Based on the recent appellate ruling, the debt owed by the man for his incarceration costs will remain discharged, and he has no obligation to repay it.

Jail FenceThe Debtor Attempts to Discharge a $3,500 Debt for Incarceration Expenses Through Bankruptcy

The debtor in the case of County of Dakota v. Milan was a man who sought debt relief through a Chapter 7 bankruptcy proceeding in 2014. Among other debts and obligations, the debtor requested the discharge of a $3,500 debt that he owed to the appellant, the Dakota County Sheriff’s Office, for the costs of his 179-day incarceration at the Dakota County Jail. Like many jails and prisons throughout the country, the appellant charges inmates daily fees to contribute toward the expenses of their incarceration. During the initial bankruptcy proceedings, the court ruled that the unsecured debt owed to the appellant should be discharged, leading the Sheriff’s Office to file an appeal.

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A popular online meme that came out earlier this year pointed out that over 500,000 Americans declare bankruptcy because of medical bills each year, and it was often used to criticize the medical and financial institutions of the United States. According to a recent fact check performed on the claims behind the meme, the numbers may not be exact but appear reasonably accurate. The larger issue surrounding the viral spread of the meme online is the misguided criticism of the United States bankruptcy code. In reality, many Americans are able to use U.S. bankruptcy protections to regain control of their finances after incurring excessive medical debt that was necessary to save their own life or the life of a loved one.

StethoscopeMore Personal Bankruptcies Are Filed Over Medical Debts Than Any Other Type of Debt

Putting the relatively insignificant dispute over the exact numbers aside, both the source of the popular meme and the fact checkers who wrote the article agree that more personal bankruptcies are filed to address medical debt in the U.S. each year than over any other source of debt. The reasons for this vary, but medical debts may result in so many bankruptcy filings because they are rarely secured by collateral, can increase very quickly to reach levels that are impossible for many debtors to pay off, and are often incurred while patients are suffering from medical problems that prevent them from working. According to a 2013 congressional report cited in the article, over 640,000 medical bankruptcies were filed in American courts in 2013. Many of these cases resulted in large amounts of medical debt being discharged.

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Consumers who are considering debt relief options and possibly filing for bankruptcy should be aware of the various exemptions that are available to protect certain assets from forfeiture to creditors as part of the bankruptcy process. An important point not to be misunderstood is that although personal IRA retirement accounts are protected from being taken as part of a Chapter 7 bankruptcy, an account that has been inherited by the bankruptcy debtor will be treated as any other non-exempt asset and may be seized as part of a Chapter 7 bankruptcy proceeding. Because of this rule, people thinking of bankruptcy should carefully consider all of their options and seek qualified advice before filing a petition.

monies-1498709Personal Retirement Accounts and Some Inherited Assets Are Exempt From Chapter 7 Bankruptcy

As noted in a recently posted news report outlining one man’s experience with filing for bankruptcy while trying to protect an inherited IRA account, the U.S. Supreme Court has ruled that an inherited IRA retirement account does not include the same protections as an account that was actually earned by the bankruptcy filer. This means that bankruptcy creditors will have the same access to an inherited IRA as they would to a bank account or other asset in the debtor’s name. The article correctly notes that there are some exceptions to the rule. For example, a surviving spouse who inherits a 401(k) from their deceased husband or wife is able to treat the account as their own for bankruptcy purposes. Additionally, some states have independently passed laws that protect their citizens’ inherited accounts.

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Although there are currently some methods to discharge student debt with a federal bankruptcy case, the fact remains that bankruptcy courts rarely receive requests to discharge student loans and even more rarely grant them. According to a recent Forbes report, the Department of Education has been putting considerable effort into defending the current laws governing student debt in bankruptcies.

college-1440364The Department of Education is the largest single holder of student loan debt and is likely putting so much effort into supporting the current laws because these laws are extremely favorable to holders of student loan debt. When compared to other types of debt, even potentially questionable debts like unpaid taxes, gambling losses, or unpaid child support, student loan debt continues to be one of the most difficult types of debt to discharge in bankruptcy.

Debtors With Student Loan Debt Must Be Cautious of Debt Relief Agencies that Offer Loan Rehabilitation

The Forbes report includes an interview with a student loan activist and advocate, Alan Collinge. Mr. Collinge cautions that some “debt relief agencies” and “debt counselors” have been distributing overly optimistic information concerning the likelihood of student loans being discharged in bankruptcy as a method to attract clients with student loan debt in default. The predatory companies that concern Mr. Collinge attract clients with promises of discharging student debt through bankruptcy, but they have no real intention of guiding their clients through bankruptcy.

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Many people believe that filing for personal bankruptcy will make it impossible for them to start a business and become financially independent after their debts have been discharged. Often, bankruptcy debtors will discover that the exact opposite is true. With some discipline and good advice, entrepreneurs can find that starting a business and securing financing is much easier after a bankruptcy than it would have been if they had tried to resolve their debts without filing for personal bankruptcy. Three such entrepreneurial success stories have been outlined in a recently published online editorial post, and they are great examples of the ways for entrepreneurs to start and run a successful business after discharging debts through bankruptcy, while also rebuilding their credit.

credit-card-gold-platinum-1512626The Use of Secured Credit Cards is Often the First Step to Rebuilding Credit after Bankruptcy

After a bankruptcy, it can be difficult for someone to be approved for a credit card, but responsible credit card use is one of the best ways to build credit, so what can be done? A secured credit card can be a helpful way for someone to rebuild their credit after a bankruptcy.

With a secured credit card, it is much easier to gain approval, although it requires a collateral deposit that functions to cover the credit line for the card. Since the card user makes charges and pays the bills on time, they may be able to deposit more in the account to add more credit, and sometimes a bank will increase the credit line without requesting additional deposits. Using a secured credit card can allow someone to gain more and more credit over time, and it can eventually help an entrepreneur to be offered unsecured credit for a business loan to help with business expenses. Users of secured credit cards must be diligent about keeping their balances under the credit limit and paying their bills on time, or else using the card will not help them rebuild their credit.

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A recent decision of the bankruptcy panel of the Ninth Circuit Court of Appeals serves as a reminder to those considering filing for bankruptcy that it may be best to seek the help of a qualified attorney to prepare their case. In the case of In re Henry, a debtor attempted to prepare and file his own bankruptcy without an attorney, and his petition was eventually dismissed by the bankruptcy court after he failed to meet a deadline. The man appealed to the Ninth Circuit Court of Appeals and was not given much, if any, leeway by the court because he had not been using an attorney, and the dismissal of his petition was affirmed.

timer-1420821The Debtor’s Initial Proposed Plan

In November 2014, the debtor in this case, Mr. Henry, submitted a proposed bankruptcy plan for confirmation to the bankruptcy court. The trustee objected to the plan because it did not comply with the statutory guidelines, and the debtor was given additional time by the court to file an amended plan and proceed with confirmation. After the two-week deadline had passed and the bankruptcy court did not receive an amended plan, the case was dismissed. As a result, he will be unable to discharge his debts through this proceeding. The man claimed that he mailed the amended plan on time and appealed the judgement when the court ruled against him.

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The 11th Circuit Court of Appeals released a ruling last month in the case of Valone v. Waage, reversing a lower bankruptcy court’s order that denied a debtor the use of a personal property exemption (“wildcard exemption”) in his Florida chapter 13 bankruptcy.

playing-cards-4-756323-mIn states that provide for them, wildcard exemptions allow a bankruptcy debtor to keep some nonexempt personal property out of the bankruptcy, up to a value that is established in the statute. Wildcard exemptions enable bankruptcy debtors to keep some important property or family heirlooms out of the reach of the bankruptcy process.

This Request for a Wildcard Exemption was Denied

The debtor in Valone v. Waage was denied the use of the Florida wildcard exemption by the bankruptcy court, which ruled that he had received the benefits of the homestead exemption and was therefore not eligible for the wildcard exemption.

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The President has been considering ways to allow certain student debts to be expunged through the bankruptcy process. A prominent news source has reported that the White House is evaluating the steps to discharge student loan debt. They are hoping that there can be a shift in bankruptcy laws concerning student loan debt so that it follows the same rules and regulations as mortgage and credit-card debt.

cap-and-diploma-533027-mNinety percent of student loans are created by the federal government, whereas the remaining loans are held by private lenders. Unfortunately, student debt has doubled in just the past five years, and a majority of borrowers are behind on making payments. Some amount of the borrowers are graduate students who make a livable income; however, many are students and parents who survive on a very limited amount of income.

President Obama has advised his administration to begin considering how to allow all student loan borrowers to be able to use bankruptcy proceedings to discharge their student debt. Currently, federal law does not generally allow either U.S. government student loans or private loans to be discharged in bankruptcy proceedings. However, auto loans, credit-card debts, and home mortgages are allowed to be wiped out in bankruptcy proceedings. This disparity has resulted in many individuals facing serious financial troubles that can affect them for the rest of their lives, all because of their decision to better themselves by going back to school.

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Television actor Gary Dourdan, best known for his role as Warrick Brown on the hit drama CSI: Crime Scene Investigation, filed bankruptcy recently and is facing claims by his ex-girlfriend that he owes her money from a 2012 settlement between the two of them that cannot be cleared in the bankruptcy proceeding. According to an article posted on Foxnews.com, the actor is filing for bankruptcy for the second time, and his ex-girlfriend has requested that the Bankruptcy Court refuse to clear a nearly $100,000 debt he owes her from a settlement after allegedly breaking her nose.

grungy-money-1-1361617-mThe Automatic Stay Caused By a Bankruptcy Filing

When a debtor files for bankruptcy in federal bankruptcy court, 11 USC § 362(a) of the United States Code has created an automatic stay preventing the filing of civil actions, collection of debts or enforcement of judgments against the debtor once the bankruptcy is filed. This law includes punishments against creditors who continue collection efforts after a debtor files for bankruptcy. The automatic stay helps bankruptcy debtors obtain immediate relief from the overwhelming harassment that collection agencies and creditors so often use to go after debts. The creditors will still have an opportunity to be heard in the bankruptcy proceeding and make their case for monthly payments or a share of the debtor’s estate, but they must wait and address their claims through the bankruptcy with all of the other creditors.

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Former  University of Kentucky  and NBA basketball player Antoine Walker, who played for several NBA teams, recently filed for bankruptcy. Walker’s bankruptcy, as reported by ESPN, is one of many recent bankruptcy filings by former professional athletes. According to an article by cctv.com, other former pros who have gone bankrupt include basketball player Allen Iverson, boxers Mike Tyson and Evander Holyfield, baseball player Lenny Dykstra and soccer player Diego Maradona. Each of these professional athletes who went broke made millions from salaries and endorsements, but found themselves in over their heads and saddled with more debt than they could handle, and they were forced to discharge their debts.

basketball-court-1389957-mPeople in every profession sometimes find themselves in financial trouble, and the truth is many people who need to file for bankruptcy were very successful at one point and are unable to maintain their standard of living and pay their debts for one reason or another. The economic downturn of the late 2010s has been a large contributing factor to many athletes’ bankruptcies, since they became accustomed to favorable investment conditions and didn’t diversify their investments.

Like many Americans, many pro athletes didn’t see the crash coming and became overextended nearly overnight. Also like many Americans, these athletes have been able to find some relief from their troubles by filing a federal bankruptcy case, thanks to which many have gotten themselves back on their feet.

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