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Essex County Bankruptcy Law Blog

Student loans could cause lots of Americans to file bankruptcy

To be clear, student loans are nearly impossible to discharge in a bankruptcy. However, the ability to repay them could be hampered by other debts a New Jersey resident incurs. Therefore, having those debts discharged in a bankruptcy could free up the necessary income to make the payments.

The most recent numbers indicate that the total amount of student loan debt outstanding in the United States is approximately $1.27 trillion, which eclipses credit card debt and motor vehicle loans by millions of dollars. There also does not seem to be an end in sight. According to one source, another $3,055.19 is added to that already astronomical amount every second.

Making the decision regarding what type of bankruptcy to file

New Jersey residents who are struggling with financial problems may decide to file bankruptcy. Before filing, however, it may be beneficial to understand what to expect regarding the process and the fate of certain assets and debts. This information could help in determining what type of bankruptcy to file along with when it would be most advantageous.

Individuals generally file one of two types of bankruptcy: Chapter 7 (liquidation) and Chapter 13 (reorganization). Which type will work best for a New Jersey resident depends on several factors such as owning a home, income and types of debts. It may also depend on whether a homeowner wants to keep certain assets or will surrender them during the bankruptcy.

Debt collectors can be used to prepare for bankruptcy

New Jersey residents who are having financial issues do not need the added stress that debt collectors induce through harassing phone calls and letters. However, if someone is preparing to file for bankruptcy, debt collectors can be a valuable source of information. The Fair Debt Collection Practices Act (FDCPA) requires that consumers be provided with certain information about their debts, and that information can help in preparing a Chapter 7 or Chapter 13 bankruptcy petition.

Debt collectors can include the original creditor, a company that purchases debts and attorneys. If someone attempting to collect a debt contacts a consumer, the person or entity making contact has five days to send a "validation letter" to the consumer. This letter must outline certain information about the debt including information about the original creditor.

Agreement will stop harassing phone calls from creditors

The Consumer Financial Protection Bureau (CFPB) accused Discover Financial Service's private student loan division of illegal debt collection practices. In New Jersey and elsewhere, the CFPB is the federal agency that helps stop harassing phone calls from creditors. The agency claimed that Discover "hounded" over 100,000 of its student loan borrowers by contacting them on their cell phones both early in the morning and late at night in violation of proscribed debt collection practices.

The company was also accused of overcharging those same customers. The CFPB also alleged that Discover did not adequately service its student loans. Most people recognize Discover as a credit card company that earns most of its revenue from that division. The company made an agreement with the CFPB to pay $18.5 million without admitting any fault.

Qualifying for a loan modification could increase debt problems

As many New Jersey homeowners continue to struggle to keep their homes, some are hanging their hopes on a loan modification. However, qualifying for this type of mortgage debt relief could actually make a homeowner's financial situation worse. This is because many loan modifications are not offered to borrowers until the situation is dire.

In many cases, lenders require a homeowner to be behind in their payments by at least 90 days before a loan modification will even be considered. This means that the individual's credit score will dramatically fall, which would most likely effect his or her ability to obtain credit in the future. It has been estimated that a mortgage loan that is 90 days past due reduces a person's credit score by as much as 100 points.

JPMorgan settlement may not keep some from Chapter 7

JPMorgan recently came to a settlement regarding its credit card debt collection practices. Even though some consumers may receive restitution as a result, it could be too late for some New Jersey residents whose credit has been ruined by illegal debt collection practices. For them, filing for Chapter 7 bankruptcy could put a stop to any further damage and provide a fresh start financially.

Despite the protestations of many consumers, JPMorgan continued to attempt to collect debts that did not even belong to the parties being harassed. Even if the company had the right party, the amount was often incorrect or not collectible. During the course of such debt collection efforts, adverse reports were sent to the credit bureaus. In some cases, court judgments were obtained with false or bad information.

Bill aims to stop foreclosure for Sandy victims for 3 years

The effects of Hurricane Sandy continue to plague New Jersey homeowners. Many are still not back in their homes and constantly face the threat of foreclosure. A new bill making its way through the state legislature aims to stop foreclosure proceedings for Sandy victims for three years while people work to rebuild their homes.

This bill only affects homeowners who qualify for the Low-to-Moderate Income Homeowners Rebuilding grant program. Due to significant delays, homeowners waiting for funds from that program and the Reconstruction, Rehabilitation, Elevation and Mitigation (RREM) grant program are unable to move forward. As a result, many are struggling to remit rental and mortgage loan payments. Both programs added rental payment assistance in March in recognition of the delays homeowners are facing.

Changes in medical billing may not prevent bankruptcy for some

Any New Jersey resident who has been to a doctor understands how confusing, complicated and frustrating the medical billing process can be. Even though changes are on the horizon regarding how medical bills are reported to the credit bureaus, it may not be enough for some people. Filing for bankruptcy could help many patients clear the slate and give them a fresh financial start.

What seemed like a simple rash turned into a credit nightmare for one out-of-state woman. Her medical problem was resolved, but her medical billing problem was only beginning. Even though she started a payment plan, her account was turned over to collections, and her credit score took a significant hit that even forced her to quit school because she was unable to keep her student loans. A woman in another state also had her account sent to collections even though she was on a payment plan.

Music producer says bad choices led to Chapter 7 filing

New Jersey hip-hop fans may recognize the name Scott Storch, who has worked with artists such as Beyonce, Justin Timberlake and Dr. Dre. At the height of his career, he was worth an estimated $70 million. He admits that bad financial choices led to his need to file for Chapter 7 bankruptcy.

Storch says his cocaine habit caused him to make impulsive purchases worth millions of dollars. At one time, he owned a mansion, 13 luxury cars and a pinkie ring worth $3 million by itself. He took lavish trips that could cost up to $250,000 just for airfare if he was traveling overseas. He could easily spend a half a million dollars on shopping sprees.

Second mortgage may not be canceled in Chapter 7 bankruptcy

New Jersey homeowners may need to be aware that the U.S. Supreme Court recently ruled that a second mortgage on the filer's residence may not be considered an unsecured debt and be discharged in a Chapter 7 bankruptcy. Even if the value of the home is less than the first mortgage, the second lien will not automatically be stripped. The case originated after Bank of America insisted that the second lien of a Chapter 7 filer remain intact, even if the bank will not receive any proceeds from the sale of the home.

The filer claimed that since the home was severely underwater, the second mortgage should be treated as an unsecured debt. Unsecured debts are routinely discharged in a Chapter 7 bankruptcy while priority is given to creditors with secured debts, which means that they are backed by collateral such as a home or vehicle. The court unanimously agreed with Bank of America that the lien should continue to be considered a secured debt, which means that the homeowner would remain liable for the balance after the bankruptcy.