The Nebraska bankruptcy court discharged student loan debts for a 50-year-old debtor raising a disabled grandson. See In re Mudd. The Court overruled the Department of Education’s argument that a debtor must work two jobs to meet her burden of showing undue hardship.

In discharging the student loans the Court pointed out several factors:

  • The debtor has never earned more than $13 per hour.
  • Prospects of higher income in the future was speculative.
  • The debtor rented a single bedroom apartment that she shared with her disabled 17-year-old grandson.
  • The debtor was eligible for a zero-payment Income Based Repayment plan with the Department of Education.
  • The debtor failed to renew the income-based program for no apparent reason.
  • The debtor had no retirement savings, pension accounts or investments of any kind.
  • The debtor had recently purchased a 2016 Nissan Rogue with payments of $414.65 per month.
  • The debtor suffered from diabetes, high cholesterol, gastro reflux disease, menopause, severe allergies and a torn rotator cuff.
  • Between 2006 and 2015 she received 26 student loans .
  • She appeared to owe in excess of $75,000 of student loans.
  • At the time of trial the debtor worked 40 hours per week earning $12 per hour and worked a part-time job as a FedEx package handler.
  • Medical bills and garnishments were the immediate cause of the bankruptcy filing.

TOTALITY OF CIRCUMSTANCES:

The court applied the “Totality of Circumstances Test” used in the 8th Circuit in reviewing the application.  Three factors are considered:

  1. The debtor’s past, present and reasonably reliable future financial resources.
  2. A calculation of the reasonable living expenses of the debtor and her dependents.
  3. Any other relevant facts and circumstances.

A long review of the debtor’s income earning record indicated that this debtor was already earning at her peak capacity and that it was doubtful and speculative that her income would increase substantially beyond its present level. The debtor showed good faith in working a full-time job and part-time job to pay for basic living expenses.

The court also agreed that the debtor’s living expenses were reasonable.

MUST A DEBTOR WORK TWO JOBS TO DISCHARGE STUDENT LOANS?

The Nebraska bankruptcy court scoffed at the notion that a debtor must work two jobs before they can show good faith in discharging student loans.

At trial, DOE insinuated that Mudd must maintain two jobs to meet her burden of
showing undue hardship. It asserted that, even if Mudd obtains a higher-paying
customer service representative position where she “only” worked 40 hours per week,
she “would still have the ability in terms of time in your schedule and otherwise to work
a second job.”

A 50-year-old debtor with numerous health problems earning $12 per hour who supports a disabled grandchild must work a second job to show good faith before the court could consider issuing a hardship discharge of student loans?  That was the implied argument of the US Department of Education attorneys.

WHY WAS THIS A TOUGH DECISION FOR THE COURT?

I think most observers would agree with the court’s opinion in this case.  It is extremely doubtful that a 50-year-old debtor with health problems will see an increase of income. In fact, the very sad truth is that all workers over the age of 50 have a bullseye affixed to them for “strategic layoffs.”  Older workers impose a burden on corporate health insurance premiums and younger managers typically feel uneasy managing older workers.  When you hit 50 in America’s workforce, they want you gone.

But why did the court have to suffer through a 28-page opinion? Was there any real question of a hardship?  Even if the debtor was not supporting a disabled grandson, wasn’t the fact that she was 50 years old with health problems and no savings, pension, home or prospects of higher wages more than enough to justify a hardship discharge? Why did the court struggle to balance the equities in this case?

The legal standards regarding student loan discharges were created when such loans could be discharged five years after they became due.  And since five years is a very short period of time, the standards to qualify for a special “hardship discharge” prior to the running of 5 years were very high.

But when the 2005 bankruptcy amendments were passed to eliminate student loan discharges entirely except for the hardship cases,  the courts failed to update their standards.  Courts continued to apply the very tough standards applied when discharges could automatically be granted after a student loan was five years old, and this is an error that our appeals courts have lacked the courage to address.

As I write this blog post, protestors have stormed the nation’s capital to block the vote confirming the election of President Biden and in Georgia the US Senate elections may usher in serious bankruptcy reform legislation. We may see bankruptcy reform laws passed to finally deal with crushing student loan debts.  But legislation is tricky and slow, and it is time the courts update the standards applied to define what an undue hardship means for debtors entering into their final working years with no savings or economic stability.

Image courtesy of Flickr and Bradley Weber

Senator Elizabeth Warren has introduced a law to radically change the consumer bankruptcy practice entitled the Consumer Bankruptcy Reform Act of 2020.

This revolutionary document would make dramatic changes to bankruptcy practice.

  1. Chapter 7 and 13 is eliminated and replaced with a single system called Chapter 10.
  2. Student Loan debts become dischargeable just like any other debt.
  3. Discharges are issued immediately upon confirmation of payment plans instead of waiting until all payments are made.
  4. Discharges would be issued without the requirement of a payment plan (what Chapter 7 currently offers) to families whose income is less than 130% of the median income for their state.  For a Nebraska family of 4, the current median income level is $96,749, so debtor’s whose family income is less than $125,773 would be eligible for immediate discharge in Chapter 10.  For a single debtor the income cutoff would be $66,101.
  5. Credit counseling requirements are eliminated.
  6. Past due rent payments are discharged but landlords may not terminate the lease as long as future rent is paid on time.
  7. Telephone/Zoom Court hearings. Debtors would no longer have to attend the required trustee meeting in person and the meeting must not conflict with a debtor’s work schedule.
  8. Spending habits become irrelevant: Bankruptcy courts would no longer focus on how a debtor spends their money. Rather, median income levels would determine the amount paid back to unsecured creditors with few debtors having to pay back anything at all.
  9. Three types of payments plans are created: Repayment Plans for unsecured debts.  Residence Plans for delinquent mortgage payments.  Property Plans for non-mortgage secured debts, like cars or furniture.  A debtor may be enrolled in three plans at the same time.
  10. Attorney fees may be paid after the case is filed, but attorneys may not sell their unpaid fees for quick cash.
  11. Trustees may not dismiss unpaid cases but rather must enforce a lien. In current chapter 13 cases, a debtor who fails to pay monthly payments may have their case tossed out of court without a discharge.  New Chapter 10 instead issues an immediate discharge upon plan confirmation and gives the trustee a judgment lien that the trustee may use to enforce the plan, which basically requires the trustee to sue and garnish the debtor.
  12. Federal property exemption laws would apply to all cases and allow an individual to shield $30,000 of personal property from creditors.

The Chapter 10 proposal is revolutionary to the core.  This is a radical manifesto that would rip through consumer bankruptcy practice. And, unfortunately, because of its radicalness, it probably has zero chance of ever being enacted into law and squanders the current opportunity to achieve real bankruptcy reform.

What is also clear about this proposal which was endorsed by 74 law school bankruptcy professors, is that it rejected any input from those professionals, judges, trustees and attorneys engaged in consumer bankruptcy practice.

There are so many problems with this proposed law that it is hard to begin.  Here is a short sampling of some of the obvious defects of this political manifesto.

  • Student Loans.  Is it really wise or fair to allow students to discharge their entire student loan debt two seconds after they graduate college? Wouldn’t it be wiser to delay eligibility for student loan discharges for a period of 10 or more years? I cannot see how voters would approve of allowing privileged college students to immediately discharge taxpayer subsidized education without making any effort to repay a single dime of debt.
  • 130% of Median Income Qualification.  Under current consumer bankruptcy law, the court may require a debtor who clearly can afford to repay some or all of their debt to enter a payment plan.  Not so with chapter 10.  Under chapter 10 we no longer review a debtor’s spending choices or ability to pay.  Rather, we only require debtors with income over 130% of median income levels to pay back anything to unsecured creditors.  Under this rule the vast majority of higher income debtors who currently must offer payment to creditors would immediately qualify for a no payment case.  Would voters approve of that change?
  • Unpaid Rent Dischargeable.  Chapter 10 proposes that past due rent be dischargeable but that landlords be forced to continue the lease as long as future rent is paid on time. But doesn’t this just encourage debtors who must file bankruptcy to stop paying rent knowing that they can stop evictions and skip paying past due rent when the bankruptcy is filed? Will this cause landlords to increase the amount of security deposits charged to all renters?
  • Mass Resignation of Trustees.  I would anticipate that the majority of trustees now serving in chapter 7 and 13 cases would consider resignation if chapter 10 were passed. Why?  Chapter 13 trustees who mange payment plans could no longer dismiss cases for nonpayment but would rather be required to enforce a judicial lien through garnishments. Is that feasible? Probably not. Chapter 7 trustees could almost never claim property under chapter 10 since new federal exemptions would protect almost every debtor’s property.  And since trustee meetings must now be scheduled when they do not interfere with a debtor’s work schedule, do we really expect trustees to conduct meetings during evening hours or weekends? This is madness!
  • Attorney Fees.  The chapter 10 proposal to allow attorneys to collect fees after this case is filed is sensible, but this proposal prohibits attorneys from selling their unpaid fees to investors.  What these law professors do not seem to understand is that this proposal changes nothing since the risk of not being paid has not changed.  Bankruptcy attorneys are not going to start filing complicated cases on an installment plan just because they are allowed to.  Only the most financially stable debtors will be able to take advantage of this change, but for lower-income debtors the attorneys will still have to collect all their fees up front since the risk of not being paid is not alleviated.  That is why allowing attorneys to factor their receivables is actually a good thing for lower-income debtors since it encourages attorneys to file cases for little money down if a market for their unpaid receivables exist.  Rather than outlawing the selling of receivables the better option is to allow the US Trustee and the courts to review the factoring arrangement for reasonableness.  When law professors and lawmakers fail to gather input from those who actually prepare cases, this is the type of misguided legislation that results.
  • Enforcement of Payment Plans.  Under the current payment plans offered in Chapter 13, the failure to make payments will result in a dismissal of the case.  Not so with Chapter 10.  Rather, the Discharge of debts is immediate upon plan confirmation and the bankruptcy trustee is given a Judgment Lien to enforce payment.  This is completely unrealistic. Bankruptcy trustees are not going to take the extraordinary steps to garnish debtors who fail to make the bankruptcy payment.  Honest but unfortunate debtors lose jobs and relocate frequently.  Tracking down judgment debtors is a difficult and expensive process.  Bankruptcy trustees depend on a steady flow of payments to fund their office, and taking away the power to dismiss cases will result in a devastating cash flow crisis that will cause trustees to resign from office at alarming rates.  The only reason a majority of debtors make the monthly bankruptcy payment is the fear that a dismissed case will allow creditors to resume garnishments and foreclosures.  Take away that fear and payments to trustees will slow overnight.
  • $30,000 Property Exemption.  The proposal to give every debtor a $30,000 property exemption will virtually eliminate a claim of assets in the vast majority of cases. As a result, income for bankruptcy trustee’s will decline substantially.  Several chapter 7 trustees tell me that their profits have shrunk considerably over the years due to greater reporting duties imposed on them and from greater property exemption laws approved by state legislatures.  Some trustee’s say they make little to no income from their trustee duties and they already question why they keep the job.
  • Remote 341 Hearings.  I fully endorse the concept of making remote Section 341 meetings with the trustee permanent.  Since COVID-19 these hearings are currently conducted via telephone conference calls, and the process is working well.  However, the new requirement that the hearings not conflict with a debtor’s work schedule is just nonsense.  These hearings only take a few minutes to complete and the debtor is given a month advance notice of the hearing date.  Many debtors complete these hearings on a cell phone by taking a half-hour break from work.  If necessary the hearing are rescheduled if the debtor is not able to attend.  To require that trustees conduct meetings when the debtor is off work in the evening or on weekends is insane.  Trustees will resign before they agree to this.
  • Post-Petition Mortgage Payments.  When a debtor falls behind on mortgage payments after a case is filed, the bank will normally file a Motion for Relief from the Automatic Stay when three or four payments are missed.  The proposed Chapter 10 law says that creditors may not take advantage of state law enforcement procedures until a post-petition mortgage payment is 120 days past due.  So does this mean that the automatic bankruptcy stay is automatically lifted when payments are 120 days past due? If so, this represents a great weakening of the protection to homeowners.  In chapter 13 cases the banks don’t even request relief until a loan is 60 to 120 days delinquent, and when that happens we routinely work out payment plans to cure the default over 6 months.  Under Chapter 10, however,  no such repayment agreements are available if the bank just waits until an account is 120 days past due.  This is less protection.
  • Median Income Calculations.  Chapter 10 still requires debtors to submit six months of paystubs and other income verification documents to their attorneys to determine their median income level.  What???  This is horrible. Do these law professors have any idea how difficult it is to obtain six months of financial records? This is what the Bankruptcy Reform Act of 2005 imposed and it directly resulted in the cost of bankruptcy cases to double and triple.  It is so obvious that the writers of this legislation have never actually prepared a bankruptcy case.  Why is it necessary for a minimum wage worker to submit a six-month income calculation when it is perfectly obvious from their last paystub and tax return that they only earn minimum wage? Such debtors do not keep paystubs and they change jobs frequently. The nightmare of collecting income documents stays the same under this “reform” bill.

I remember preparing bankruptcy cases prior to the Bankruptcy Reform Act of 2005. Bankruptcy fees were cheap and we didn’t have to collect six months of paystubs or bank statements or tax returns.  But we did have to prove up on every case and explain how we determined a debtor’s income.  Bankruptcy trustees did a good job of reviewing monthly budgets and they frequently pushed higher income debtors out of chapter 7 if they felt a payment could be made to creditors.

In some ways the practice before 2005 was too lax. It does make sense to require debtors to submit a recent paycheck stub, tax return and bank statement to the trustees for review.  It does make sense to impose a duty on bankruptcy attorneys to verify the accuracy of the petition they file.  Some reforms were overdue, but the reform act of 2005 was 99% punitive and unwise.  The law was so poorly drafted that it took a decade of court appeals to figure out what it even said.

The Bankruptcy Reform Act of 2020 is some of the worst written law I have ever read.  This legislation would destroy the current system and lead to mass confusion and trustee resignation. The drafters of the legislation seem not to see how vague and uncertain it’s provisions are and this will lead to massive litigation to figure out what the darn document says, just like the 2005 reform bill did.  But what is worse, 40 years of case law interpreting chapter 13 cases will be thrown into the trash and courts will struggle to interpret the mechanics of the new law.

Bankruptcy attorneys will, however, greatly benefit from the confusion this new law will usher in.  Bankruptcy fees will soar with the complexity of these cases while immediate discharge orders will make them seem like magicians to their clients who are ostensibly immune from not making required payments.  This law is nothing less than a radical economic manifesto that no sensible Congress should ever consider enacting into law.

 

Image courtesy of Flickr and Mark Ramsay

The 9th Circuit Court of Appeals is the first court of appeals to rule on the issue of whether a bankruptcy court must approve a lease assumption.  See Bobka v. Toyota Motor Credit Corp, 968 F.3d 946 (2020).

What happened?

When Melissa Mather Bobka filed a Chapter 7 she was leasing a Toyota Rav4.  She wished to keep her vehicle and called Toyota Motor Credit to let them know of her intention to keep the vehicle.

Toyota Motor Credit sent the debtor a Lease Assumption agreement that was signed and filed with the bankruptcy court.  The next day the bankruptcy discharge was issued.

Payments on the lease went into default and the vehicle was eventually surrendered. Toyota Motor Credit then sought to collect the past-due balance and the debtor objected stating the debt had been discharged since Toyota failed to follow the requirements of a Reaffirmation Agreement outlined in 11 U.S.C.524(c).

Toyota Motor Credit countered that the requirements of 524(c) pertain only to auto purchase agreements and not to auto leases which are regulated under bankruptcy code section 365(p).

The debtor requested that all collection activity stop and that she be awarded $50,000 in damages.

What the court said.

The bankruptcy court and the district court ruled in Toyota Motor Credit’s favor and held that banks do not need to comply with the cumbersome requirements applied to auto purchase reaffirmation agreements.  The debtor then appealed to the Ninth Circuit court of appeals.

In rejecting the debtor’s appeal, the Ninth Circuit Court identified three reasons why a lease assumption agreement does need to follow the stricter rules governing reaffirmation agreements.

  1. To apply the stricter requirements of reaffirmation agreements to lease agreements would render the language of 365(p) superfluous.
  2. Courts should to apply specific statutory construction before more general provisions.  Section 365(p) specifically deals with lease agreements and should be applied before more general rules of reaffirmation agreements apply.
  3. Other parts of the Bankruptcy Code suggest that lease agreements are not governed by reaffirmation agreement requirements.

Why is this opinion important?

A great deal of uncertainty has surrounded lease assumption agreements. Some creditors require that debtors sign reaffirmation agreements to assume a lease while others simply rely on one-page lease assumption agreements.

Reaffirmation agreements require court approval, while lease assumption agreements do not. And sometimes bankruptcy judges rule that it is not in the best interest of a debtor to reaffirm an auto loan that is beyond their ability to pay.

A ruling that court approval is not required makes it easier to keep a leased vehicle, although debtors and their attorneys should give serious thought to whether that is a good idea.

 

Image courtesy of Flickr and Dennis Elzinga.

Rambling thoughts on the impact of the 2020 elections on the practice of bankruptcy law.

Unless both Georgia senate runoff races are won by the Democratic Party candidates, it appears that the United States Senate will still be ruled by the Republicans and Mitch McConnell.

Why does this matter? Because if the Democrats take control of the Senate you can expect Senator Elizabeth Warren to lead up a crusade to overturn the Bankruptcy Reform Act of 2005.  Senator Warren has campaigned to make several changes to the bankruptcy laws, including:

  • Making student loans dischargeable through bankruptcy again.
  • Eliminating the bankruptcy “Means Test” that has driven up the cost of filing bankruptcy by imposing tremendous paperwork burdens.
  • Eliminating the requirement of completing a Credit Counseling course prior to file bankruptcy.
  • Reducing the amount a person has to pay to file a case by allowing debtors to pay attorneys after the case is filed.
  • Increasing protection to homes by creating a larger and standardized Homestead Exemption law.
  • Allowing debtors to “cramdown” auto loans to the value of the vehicle.
  • Streamlining the bankruptcy process to make it easier and less expensive to file.

But if Republicans continue to control the Senate by winning one or both runoff elections in Georgia–something that is more likely than not–then it is doubtful any radical changes will be made to the bankruptcy laws.

The election results makes a big difference when advising new clients, especially clients with large student loan debts. “Are you sure you want to file a case now under the current law when student loan debts may become dischargeable if the Democrats take control of the Senate?” That is the question I have been asking clients in recent months, urging them to see if they could delay the process until we knew the results of the election. Well, now we know a lot more, and it doesn’t appear that much if anything is likely to change unless upsets are achieved in the January runoff elections..

Even if the Republicans stay in control of the Senate, it is possible that newly elected President Joseph Biden will spearhead an effort to reform the bankruptcy laws he helped mess up in 2005. Biden has pledged to reverse the bankruptcy amendments he championed in 2005.

Bankruptcy reforms we can all agree on now.

Regardless of who controls Congress in 2021, here are some suggestions that both Democrats and Republicans should agree upon right now:

  • Student Loans.  Student Loans should be dischargeable in bankruptcy after a certain period of time.  Can we all agree that these loans should be dischargeable after 20 years? Gosh, that is a very hard position, but it’s a lot better than the one we have now that they can never be discharged unless an extreme hardship is present.
  • Means Test. Abolish the Means Test. This is a silly requirement that has never achieved its intended purpose other than to make filing bankruptcy more expensive and difficult.
  • Attorney Fees.  Allow attorney fees to be paid after the case is filed. Too many low-income debtors continue to be garnished because they cannot afford all the upfront fees to file bankruptcy.
  • Eliminate Credit Counseling.  The courses debtors must take to file and complete a case are worthless. No real education occurs and the courses do not cause debtors to avoid filing.
  • Communications with Banks. Prohibit banks from canceling online access to borrowers who file bankruptcy and require mortgage lenders to speak to borrowers who call them after filing bankruptcy. Banks often take the unreasonable position that they are not allowed to speak to customers in a bankruptcy case, and I would agree that banks should not hound borrowers in bankruptcy with collection calls, but there is no reason they cannot speak to customers who call them. The refusal to speak to their customers in bankruptcy is shear madness.
  • Standardize Bankruptcy Exemptions.  Standardize bankruptcy exemptions by not allowing states from opting out of the federal exemption scheme.
  • Video/Telephone Court Hearings.  Continue the telephonic and/or video meetings with the Trustees that started during COVID-19.  Ever since COVID-19 hit we have been conducting required meetings with the bankruptcy trustees via telephone conference calls.  Guess what? They work just as well as in person meetings.  Instead of driving hundreds of miles in the Nebraska snow during winter to attend meetings that typically last about two minutes, debtors are able to call in to answer the routine questions asked by trustees over the telephone. I do not notice any decrease in the effectiveness of the trustee’s examinations, and in some cases their effectiveness may be increasing since they have their full computer systems before them.  The US Trustee’s Office should begin work on a video conferencing system similar to Zoom to handle all trustee hearings going forward. The ability to share computer screens and to view debtors over a camera system works great. A system with a Zoom “waiting room” that allows the trustee to interview one debtor at a time without the distraction of a crowd of debtors waiting for their turn at the table would be ideal.
  • Digital Signatures: Make permanent the use of Digital Signatures that began in Nebraska in 2018 and extended all all bankruptcy courts during COVID-19.  The use of Digital Signatures has been a tremendous success that greatly decreases the burdens on debtors and the court without spending a single extra taxpayer dollar.
  • Chapter 13 Debt Limits:   The chapter 13 debt limits were designed to keep complex business cases out of this streamlined repayment program.  However, with student loan and medical debts, the debt limit (currently set at $419,275) frequently prevents debtors with simple cases from filing chapter 13.  This problem could be solved by not counting medical and student loan debts towards the debt limit.

The 2020 elections tell us that radical bankruptcy reform is off the table. But practical reforms are very possible if our leaders focus on what they can all agree upon instead of dwelling on what divides us.

 

Image courtesy of Flickr and Anthony Quintano

Nebraska voters have chosen to cap payday loan interest rates.  Ballot box Initiative 428 limits the annual percentage rate on payday loans at 36%.

Nebraska Department of Banking report indicates that the average annual percentage rate on payday loans in Nebraska is 405%.

However, according to Thomas Aiello of the National Taxpayer Union, the cap on interest rates would actually hurt low-income Nebraskans by denying them access to credit.

This is an onerous rule that is more likely to decimate credit markets for Nebraskans in desperate need of a small, quick loan.” Thomas Aiello

Indeed, capping payday interest rates at 36% would devastate the industry.  Although loan rates average 405%, the default rate on those loans is also significant and the effective interest rate earned by payday lenders is much lower when those defaults are factored in.

Support for capping the interest rate is receiving support from many sources, including the Catholic Church.

“Payday lending too often exploits the poor and vulnerable by charging exorbitant interest rates and trapping them in endless debt cycles,” said Archbishop Lucas. “It’s time for Nebraska to implement reasonable payday lending interest rates. The Catholic bishops of Nebraska urge Nebraskans to vote ‘for’ Initiative 428.”

The amazing fact of payday lending  is that it is not restricted to low-income neighborhoods. You can find payday lenders in almost every neighborhood, regardless of income level.

Can payday lenders survive with a 36% cap on interest?

My guess is that the business model of payday lenders will have to change. Lending standards will be tightened and the least qualified borrowers will be denied credit. Is that a bad thing as Thomas Aiello suggests? Probably not. Other lending sources still exist, like pawn shops or family loans or selling unnecessary items.

Some commentators have told me that such interest rate caps are ineffective since lenders simply set up shop on the internet and use the National Bank act to argue that interest rates are controlled by the state of incorporation.  In other words, the evade the cap by incorporating in a different state and argue that our Nebraska laws do not apply to lenders that cross state lines.  Time will tell if this approach is followed.

Other attorneys have suggested that lenders will evade the cap by originating more Title Loans secured by vehicle titles.

It will be interesting to watch the payday lending industry going forward. Something tells me that neither the demand for these high-rate loans nor the lenders willing to make them are going away. The rules of the game will change, but somehow lenders will find a way to evade the cap.

 

Image courtesy of Flickr and HelenCobain

 

 

Financial writer Liz Weston (@LizWeston) writes that many people who could benefit from bankruptcy don’t file because of fear and misplaced optimism.  See Fear of Bankrutpcy Holds Too Many People Back.

This is the second time that Liz Weston has suggested that more people consider filing bankruptcy (Do Debt Management Plans Work?), and this is notable since she is something of a financial guru with a long track record of encouraging Americans need to create spending budgets and advising many to seek assistance through credit counseling.

But something has changed in her approach. Maybe she is just seeing the futility of trying to dig out of debt when wages are stagnant, health insurance is non-existent or insufficient to cover ongoing medical bills, and it just seems like wasted effort to pay debts when new ones just spring up overnight.

About 14% of U.S. households — or roughly 17 million — owe more than they own, according to Federal Reserve Bank of New York estimates. Many of these households could benefit from having their debts wiped out, but fewer than 1% of U.S. households actually file for bankruptcy each year. Last year, there were 752,160 personal bankruptcy filings. Researchers refer to this gap as “missing bankruptcies” — the filings that could be happening, but aren’t.

THE FEAR FACTOR:

So what is holding Americans back from filing more cases? In a word, fear. Fear of living with bad credit. Fear of the judgment of future employers. But Weston says much of this fear is misplaced.

A bankruptcy filing remains on your credit reports for up to 10 years. But credit scores can start to recover soon after you file. It’s possible to get a VA or FHA mortgage two years after a bankruptcy. Most loans require you to wait at least four years.

People can start to rebuild credit a few months after their bankruptcy case is discharged by getting secured credit cards, which require a deposit, or credit-builder loans, available from some credit unions, community banks and online.

Yes, credit scores begin to recover as soon as the case is filed. Why is that?

There are two reasons bankruptcy enables the healing of credit scores.  First, once a case is filed all negative reporting stops. Creditors no longer report late payments, collection accounts, judgments, and other negative information.

Second, filing bankruptcy improves the single biggest factor in your credit score–the Debt-to-Income Ratio.  About one-third of your credit score is based on how much debt you owe compared to how much income you earn.  The higher that ratio the lower your credit score. Filing bankruptcy eliminates the debt, so the debt-to-income ration is immediately improved.

UNREALISTIC OPTIMISM:

Weston claims that too many people have an irrational belief that things will get better.

Misplaced optimism can also be a problem. The same hopefulness that causes people to take on too much debt also can lead them to put off the reckoning.

What Weston calls “misplaced optimism” is what I call Around-The-Corner Thinking.  “As soon as I get this debt paid then I can start saving money.”  The problem is, once you pay off that debt or solve that problem, a new set of problems pop up.  So you adjust your plan and will start saving money after that problem is solved, but before you know it yet another problem arises.

The problem with around-the-corner thinking is that it fails to recognize that new problems ALWAYS continue to arise.  That’s actually the norm.  The concept that we can start to achieve financial goals AFTER today’s problems are solved is delusional.  Today’s financial woes never end.  Employers continue to lay off workers. Health insurance companies continues to not pay claims. Recessions continue to occur.

So instead of delaying making contributions to that retirement plan, instead of delaying saving for the house down payment, instead of delaying college until after the credit card debt is paid, start doing that today and consider filing bankruptcy to solve a debt problem that is not going away. Stop being overly optimistic and face the music of you debt problem. It’s not going away.

Am I taking Liz Weston’s advice too far? Gosh, this sounds so bleak!  Well, by all means, we should find ways to pay back debt if possible.  But do you really have a Plan to get out of debt, or is it just unrealistic optimism?

It’s time to stop fearing the debt problem and time to start addressing it realistically.

A new report entitled Understanding Evictions in Omaha written by Creighton University professors Pierce Greenberg and and Gary Fischer outline the devastating impact evictions have on the Omaha community.

Evictions cause a loss of “social and community capital.”  High eviction rates are related to increasing crime rates and cause poor educational performance in schools. They cause a severance of supporting relationships that exist in all neighborhoods and can set off a cycle of social destruction that is difficult to break.

Residential stability begets a kind of psychological stability, which allows people to invest in their home and social relationships. It begets school stability, which increases the chances that children will excel and graduate. And it begets community stability, which encourages neighbors to form strong bonds and take care of their block. – Matthew Desmond, author of Evicted

The report describes Omaha’s eviction scene with many statistics and observations:

  • 39,346 eviction lawsuits were filed in 8 years between 2012 to 2019.  That equals 410 evictions per month.
  • 28,226 of those lawsuits resulted in a family being evicted.
  • Omaha has a 3.66% Eviction Rate per 100 rental units per year.
  • Omaha ranks 271st out of 274 U.S. cities on a measure of racial inclusion according to data from the Urban Institute.
  • Evictions predominately occur in older areas of Omaha with higher rates of low income housing and minority populations.
  •  Many eviction “hot spots” represent large apartment complexes or public housing facilities.
  • The interconnected nature of race, income, and evictions helps illustrate how important housing and residential stability is to reducing racial and economic disparities in Omaha.
  • The number of evictions in an elementary school attendance area correlates with student learning outcomes.
  • Only 1 out of 394 defendants were represented by an Omaha attorney.

The connection between high rates of evictions and societal problems in education, crime, jobs, income and family stability is overwhelming.  And, these Creighton professors have some suggestions to combat that problem.

  • Focus on eviction hotspots.  Omaha Housing Authority represents 7% of the eviction lawsuits filed in Omaha. Focus should be given to finding alternative dispute resolutions to reduce eviction rates.
  • Right–of-Counsel-Programs.  New York City initiated a program in 2017 to appoint attorneys to represent low-income tenants in eviction proceedings.  84% of defendants who were provided counsel were able to remain in their residence.

Will filing bankruptcy stop an and eviction in Nebraska?

Filing any type of bankruptcy in Nebraska temporarily stops an eviction.

Chapter 7 bankruptcy cases are short cases completed in roughly 100 days.  There is no payment plan associated with these cases and there is no power to cure a rent default, but the filing of a case will temporarily delay an eviction for probably 30 days.

Chapter 13 cases have more power to address eviction issues.  In addition to imposing a temporary stay of an eviction lawsuit, chapter 13 plans have the power to cure a lease default.

Section 1322(7) of the Bankruptcy Code allows a debtor’s payment plan to assume an unexpired lease and cure a default, however, this right is subject to Section 365 of the Bankruptcy Code, which provides:

  • If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee—
    • Cures, or provides adequate assurance that the trustee will promptly cure, such default  . . .
    • Compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and
    • Provides adequate assurance of future performance under such contract or lease.

So, an Omaha bankruptcy attorney can help tenants to stop an eviction lawsuit IF they have the ability to cure the default promptly and to make future payments on time.  How prompt must the cure payment be? There is no hard rule, but I suspect curing a default over 60 to 90 days is probably considered a prompt payment.

 

COVID-19 is a wrecking ball destroying small Nebraska businesses, but at some point the medical crisis will end and the debt crisis will take off.

So far the damage has been mitigated by programs such as the Paycheck Protection Plan, but business revenues have dropped dramatically and consumer spending is not likely to return any time soon. Emergency funds have been depleted, worker layoffs have been instituted, but fixed expenses for rent and loan payments remain.

At some point a business just needs to start over.  Assuming the core business model is valid and revenues will return when the health crisis ends, how does the owner address the overwhelming debt?

Is it better to file a Chapter 11 and restructure the debt or should one abandon the insolvent entity and incorporate a new debt-free company?

It is my general preference to abandon the old company and to start fresh with a newly incorporated entity. Why? Because resurrecting a debt-ridden company in Chapter 11 is darn expensive and, in most cases, unsuccessful.  So one must question why they want to keep the old entity alive.

Why can’t an owner just incorporate new company? The cost of incorporating a new company is relatively cheap, but filing Chapter 11 is a massive and expensive process fraught with complexity and litigation. Only a very small percentage of companies emerge from Chapter 11 with a discharge of their debt. Most cases fail and are dismissed, leaving the owner worse off than when they started.

So, it is important to evaluate the facts that tend to support or not support filing Chapter 11 instead of just walking away from the old company and starting a new debt-free company to resume business affairs.

Factors favoring restructuring the existing company in a Nebraska Chapter 11 Case:

  • Assets owned by the company.  Some companies own very special assets that cannot be abandoned.  Assets that produce current and future revenue.  For example, if a company owns McDonalds franchise rights, you wouldn’t want to abandon that property right. In cases where a company owns a special property right that is hard to duplicate or transfer, it may be wiser to restructure the existing company than to start up a new company.
  • Leasehold Rights.  When it comes to real estate, it’s all about location, location, location.  A restaurant or store with a long-term lease in a high demand area of town may need to protect that leasehold right in Chapter 11.
  • Accounts Receivables.  Even though new revenue may have dropped in recent months, a company may have substantial receivables that will be paid out over a long period of time.  Receivables owed to the existing company cannot be transferred or collected by a newly incorporated company without fair consideration being paid to the former.  So it might make sense to file Chapter 11 to protect and preserve the cash flow provided by unpaid receivables to finance current operations and employee salaries.
  • Equipment.  A business that has a lot of industrial equipment and machinery may not be able to function or provide new services without that equipment. Unless a new company can acquire replacement equipment quickly, it may be best to file Chapter 11 to protect the equipment that generates revenue.
  • Unfinished Work and New Contracts.  Perhaps a business is in the middle of a large contract and payment depends on completing the project. Perhaps a business has signed several new contracts with work to commence in the near future. Abandoning the old company may not be the best option in these situations.

 

Factors favoring abandoning the old company and incorporating a new one.

  • You are the company and the company is you.  Customers of a popular hair stylist are likely to follow them no matter where they are located, and such a business has few hard assets or receivables. It makes little sense for such a business to file chapter 11.
  • The company has few receivables. Restaurants and hair stylists and car washes have few receivables.  Future cash flow is not dependent on collecting unpaid accounts but rather is based on new work in the future.
  • The company has few fixed assets.  Consider a drywall installer.  Business assets consist of a few hand and power tools and perhaps a work van. It is not much of a burden to replace those assets, and it makes little sense to pay substantial bank loans even if they are secured to the business equipment.  It is far less complicated and expensive to start a new corporation and to buy replacement equipment.
  • The company needs to downsize and relocate.  Reducing overhead and paring back leasehold square footage to more manageable levels is the order of the day.  Consumer spending is likely to stay at lower levels for years to come. Do you really need all that warehouse space? Is a cheaper venue available? Will employees start working from home? When current leasehold commitments are excessive, abandoning the old company may make greater sense.

 

Personal guarantees and liability of the owner.

Regardless of whether the business files Chapter 11 or simply opts to form a new corporation, the business owner may face a personal debt crisis for company debts due to loan guarantees. Most bank loans and lease agreements require a Personal Guarantee from the owner, so in addition to a restructure of the company’s debt, the individual owner may need to look at bankruptcy options as well.  A bankruptcy filed for the business corporation does not relieve the personal liability of the owner for loan or lease guarantees.

For help, contact a qualified Nebraska Chapter 11 attorney.

 

Image courtesy of Flickr and Haldane Martin

The COVID-19 virus has caused millions of Americans to file unemployment claims, and the federal government has increased state unemployment benefits by $600 per week though July 2020.

May a creditor garnish unemployment benefits in Nebraska?

Nebraska Statute 48-647 states that “benefits received by any individual, so long as they are not mingled with other funds of the recipient, shall be exempt from any remedy for the collection of all debts, except debts incurred for necessaries furnished to such individual or his or her spouse or dependents during the time when such individual was unemployed.”

Two things stand out in this exemption law.

First, if unemployment funds are mixed in an account with other funds, the protection may be lost.  Second, judgments for new necessaries (i.e., medical debts) incurred after unemployment begins may garnish unemployment funds.

MAINTAIN A SEPARATE BANK ACCOUNT FOR UNEMPLOYMENT BENEFITS

The key thing to protecting unemployment benefits in Nebraska is to keep those payments in a separate bank account.  It appears that many Nebraskans now receive benefits on a debit card called a “ReliaCard.”  Since the funds on this account are not mixed with other funds, the account funds are exempt.  But, if your unemployment funds are deposited into your regular checking account that contains other funds or deposits, you may want to open another account to hold the unemployment funds. When unemployment funds are comingled with other funds, the exemption protection is lost.

WHAT SHOULD YOU DO IF A CREDITOR SENDS A GARNISHMENT SUMMONS TO YOUR BANK?

What happens if garnishment summons is sent to the bank holding your unemployment benefits? Since the funds are exempt under Nebraska statute 48-647, is the garnishment automatically denied?

No! Even though an exemption law exists to protect unemployment benefits, you must claim your exemption rights and demand a hearing on the garnishment.  Nebraska’s exemption laws are not self-executing.  They exist, but you must file an application with the court to assert those rights.

STEP #1: REQUESTING A GARNISHMENT HEARING

If your bank receives a garnishment summons, use this form to request a hearing.  Check off on this box: “(1) the funds asked for are exempt from garnishment.”  This form must be filed with the Clerk of the Court.  The address of the court should be on the top of the garnishment summons.  The form must be signed and you should enter the case number on the form.  You can mail this form to the court or bring it directly to the courthouse.

STEP #2: CLAIM YOUR EXEMPTION

At the same time you file the Request for Garnishment Hearing form, you should also file a form to claim your exemption. Requesting the hearing is not enough.  You must also tell the court what law protects the unemployment benefit.  This Claim of Exemptions Form will should be completed, signed and filed with the Clerk of the Court at the same time you request the hearing.  On that form you will need to write in “Unemployment Benefit Exemption, Nebraska Statute 48-647”.

OTHER FUNDS ARE PROTECTED BY THE WILDCARD EXEMPTION

If you have other funds in a bank account being garnished, the Nebraska Wildcard Exemption of 25-1552 protects account funds of up to $5,000.  Regardless of the source of the deposit–wages, gifts, tax refunds, unemployment, etc,–the Wildcard exemption protects a bank account funds up to $5,000.  For most people that exemption law is all they need.

The problem with Nebraska’s exemption scheme is that it is too complicated to apply.  Yes, we have very good exemption laws, but almost nobody understands how to apply them, and Nebraska judges are often confused and surprised that bank account funds can be protected.  They rarely conduct exemption hearings and frequently deny exemption requests when the funds are clearly protected.  When your local judge does not know how exemption laws work you have a problem.

Are unemployment benefits exempt?  Yes, if you apply for a garnishment hearing and assert your exemption rights.

 

Image courtesy of Flickr and Sarah Mirk

 

Presidential candidate Joe Biden recently came out in support of Senator Elizabeth Warren’s bankruptcy reform plan, which is somewhat embarrassing because she is basically proposing to nullify the Bankruptcy Reform Act of 2005 championed by Biden.

Our nation is at the beginning of a COVID-19 Recession that, once again, is dragging the bottom 60% of Americans back into the mud of economic turmoil.  If Biden should win the election it is highly likely that bankruptcy reform legislation lead by Senator Warren is coming our way in the near future.

What exactly is Elizabeth Warren proposing? Details of her plan are lacking, but here is basic list of her plan.

#1 Abolish the Means Test

The 2005 Bankruptcy Reform Act attempted to deny Chapter 7 for higher income debtors by requiring them to submit a statement of their average monthly income earned during the six months prior to filing bankruptcy.  That average monthly income figure was then multiplied by 12 to come up with an annualized income figure.  This calculation is what we call the Means Test.

Debtors with annualized income exceeding the Median Family Income in their state find it much more difficult to file Chapter 7.  Instead, such debtors are forced to repay a portion of their debt in expensive Chapter 13 cases.

Preparing a Means Test is time consuming and expensive. It requires bankruptcy attorneys to acquire six months of paycheck stubs and bank statements from their clients, and that has caused the cost of filing Chapter 7 to double or triple since 2005.

Senator Warren says it is time to scrap this vengeful process, and she is right. The Means Test is a disaster that causes tremendous stress on debtors who are unable to gather paycheck stubs from previous jobs and bank statements from closed accounts. And what is the point of calculating an average monthly income for debtors who have become unemployed? Bravo Senator Warren!   Yes, the Means Test needs to go away.

#2 Eliminate paperwork requirement

Currently, debtors must submit paycheck stubs,  bank statements and tax returns to their bankruptcy attorney. The Warren Plan cancels that requirement, although I suspect Trustees will still demand to review recent paycheck stubs and the most recent tax return filed.

#3 Elimination of Chapter 7 and Chapter 13???

This part of the Warren Plan makes absolutely no sense and is contradictory.  Warren wants to simplify the process and create a “single point of entry.”  Debtors will “choose from a menu of options for addressing their debts.”  A menu of options?

The menu of options available would include a Chapter 7-type option of surrendering all non-exempt property in exchange for having their unpaid debts “discharged,” as well as options that allow people to deal with specific financial problems without involving all of their obligations

Okay, Warren would abolish Chapter 7 and 13 and then we create a menu of options that includes a “Chapter 7-type option.”  Um . . . what the hell does that mean?

My plan does away with means testing and the two chapters for consumer debtors. Instead, it offers a single system available to all consumers.

Senator Warren, are you aware that when a person files a bankruptcy petition they check a box for Chapter 7, 13, 11 or 12?  Um, . . . that’s a “menu of options” right there.  You see, we already have a menu of options in our current system.

And what does it mean to do away with the two chapters for consumer debtors? Would she delete the entire Bankruptcy  Code governing Chapter 7 and Chapter 13? And how does Warren’s Chapter 7-type code vary from the current code?  Why would any sane legislator do that? Such a change would throw the entire United States bankruptcy practice into utter chaos.

The current Bankruptcy Code was enacted in 1978 and it replaced the old Bankruptcy Acts originally enacted in 1801.  The Chapter 7 and 13 consumer bankruptcy law has been in existence for 42 years and thousand upon thousands of court cases have interpreted and applied that code. Is Warren really proposing to do away of 42 years of bankruptcy jurisprudence?

#4 Eliminate credit counseling requirements

The 2005 bankruptcy amendments imposed a requirement that debtors take a credit counseling class approved by the United States Trustee.  Warren’s plan eliminates this requirement, and I fully agree that these courses are entirely worthless.

#5 Debtor attorney duty to certify the accuracy of financial disclosures eliminated, but new Disciplinary Panels to be established. (What’s the difference?)

The 2005 bankruptcy amendments require attorneys to certify that they have performed a “due diligence” investigation into the accuracy of the bankruptcy schedules. Basically, the attorney must “audit” his client and review credit reports, background checks, public records, tax returns and other documents to verify that the bankruptcy schedules are truthful.

Warren says that such requirements caused bankruptcy attorney fees to increase and that this burden should be eliminated. However, she would create Disciplinary Panels to keep dishonest attorneys out of the system.

This proposal is stupid. Despite all the bad changes in the 2005 bankruptcy amendments, requiring attorneys to verify the accuracy of what they file in court is sensible.

The proposal for new Disciplinary Panels is ill advised. Every bankruptcy court already has a system to investigate unethical attorney behavior and the US Trustee’s Office is very active in disciplining attorneys who behave badly. There is no need for yet another overlapping regulatory body to do what is already being done.

#6 Lawyer advertising restrictions lifted

Bankruptcy Code Section 528 requiring attorneys to state that “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code” would be eliminated.  Agreed.

#7 Filing fees waived for lower-income debtors, phased in for higher income debtors.  

Debtors currently pay $335 in court fees to file Chapter 7 and $310 to file Chapter 13.  These fees are used to fund salaries and expenses of the bankruptcy court.  Reducing the amount of fees requested may cause a financial crisis in bankruptcy courts unless other sources of funding are obtained.

#8  Chapter 7 Attorney fees may be paid after the case is filed

Bankruptcy attorneys are not permitted to collect legal fees after the case is filed because, like all other creditors, collection of their debt is automatically stayed by the bankruptcy filing. As a result, chapter 7 attorneys require all their fees and costs (typically $1,300 to $2,000) be paid before a case is filed.

Warren’s plan correctly allows those fees to be paid after the case is filed and that should bring down the filing fees debtors must pay to file a case. It will also have the effect of dramatically increasing the number of chapter 7 cases filed.

#9 Eviction Help to allow debtors to continue to pay rent and cure defaults (Already exists?)

Warren proposes to help debtors stop evictions, but no details are provided.  Current provision in chapter 13 cases already have provisions to repay past due rent, so it is unclear how Warren’s proposal improves upon this.

#10  Chapter 13 Savings Accounts?

My plan allows people in the bankruptcy process who select a repayment plan option to set aside more money to cover the basics for themselves and their children. . . . Allowed parents to spend a reasonable amount of money on toys and books and basic recreation activities for their kids during the bankruptcy process.”

Hmm, this already exists in every Chapter 13 case.  Line 13 of Bankruptcy Schedule J (Monthly Expenses)  provides for “Entertainment, clubs, recreation, newspapers, magazines, and books.”

If Warren is suggesting that debtors be allowed to set aside money in a supervised savings account, say 5% of their income, that would be a welcome and wise change.

#11 Union Dues.  Allow union members to continue paying their union dues during the bankruptcy process.

Senator, please note that Line 5(g) of Bankruptcy Schedule I already allows for payment of union dues.

#12 Student Loan Discharge

My bankruptcy reform plan ends the absurd special treatment of student loans in bankruptcy and makes them dischargeable just like other consumer debts.

Is Warren proposing the immediate discharge of all student loan debts? Would graduating students be immediately eligible to discharge their entire student loan debt burden? No waiting period?

Doesn’t it seem a bit unfair for recent college graduates to discharge taxpayer subsidized student loans when their income is likely to rise in the near future? Other consumer debts are not subsidized by taxpayers. Isn’t that the key difference?

Something tells me that voters do not view limited discharge options on taxpayer guaranteed loans as an absurd special treatment. A waiting period to discharging student loans is fair and appropriate, and allowing their discharge after 20 years is probably acceptable to most legislators and voters.

#13: Uniform Federal Homestead Exemption

My plan creates a uniform federal homestead exemption. The exemption would be set at half of the Federal Housing Finance Agency’s conforming loan limit for the bankruptcy filer’s county of residence . . . . For most communities, it would be $255,200 in 2020″

Wow! Nebraska’s current homestead exemption only protects $60,000 of home equity. One of the most common reasons a client will not file chapter 7 is that they have more than $60,000 of equity, so they file chapter 13 instead to protect their home.

The 2005 bankruptcy amendments attempted to curtail homestead exemption planning by preventing debtors who move to states with more generous homestead exemptions from claiming those exemptions. (Rather, debtors had to claim the exemption in the state they moved from less than two years ago.)

Warren’s plan blasts opens the doors to homestead exemption planning. Her plan encourages debtors to sink money into their homesteads on the eve of filing bankruptcy.

There is a lot to be said for creating standard bankruptcy exemptions that apply to all cases nationwide. We actually have that system now, but current law allows states to opt out of the federal exemption system.  By standardizing exemption laws the the bankruptcy process becomes more uniform and that in turn encourages lawyers and software developers to create cost cutting mega firms that cross state lines.  Essentially, Warren appears to advocate the “Turbo-Taxing” of the bankruptcy process by making the process streamlined and uniform.

#14 Mortgage Loan Modifications

My plans also permits people to modify their mortgages in bankruptcy -something that is generally prohibited by law . . . As part of the menu of options available to a bankruptcy filer, it offers a special streamlined pre-packaged mortgage bankruptcy procedure that will allow struggling homeowners to get a statutorily defined mortgage modification

What does this pre-packaged procedure involve? Will it allow for a cramdown of the loan balance to the present value of a home?  Will it allow debtors to re-write mortgage loans to cure defaults outside of chapter 13 plan? Will a debtor be allowed to cramdown the interest rate to current levels?

Will homeowners receive a windfall by modifying loans to cramdown mortgage balances and interest rates during periods of declining home values, and then keep all the new equity acquired when property values rise again in good times?

Banks will vigorously oppose this reform, and that will cause a potential log-jamming of reform legislation thus  risking no reform is passed at all.

Modification Limits?  How many times may a homeowner force the bank to modify the loan?

#15 Zombie Mortgages

Warren proposes to force banks to complete a foreclosure if the debtor surrenders the home.  How is this constitutionally valid? By what right may Congress force a bank to take an affirmative act to acquire property they do not want?

Perhaps it would be better to allow debtors to exercise existing bankruptcy powers to conduct an auction of unwanted property via a motion to sell free and clear of liens.

#16 Auto Loans: Repeal 910 Day Rule

The plan repeals the 2005 amendment that prohibits the cramdown of auto loans acquired within 910 days of filing bankruptcy to the value of the vehicle.  Will this change be limited to chapter 13 cases?  May a debtor cramdown a loan to the asset value in chapter 7?

#17 Local Government Fines

Warren proposes to allow the discharge of local government fines, except for fines related to death, personal injury or other egregious behavior.

What about landlord code violations? Speeding tickets?

#18 Civil Rights Debts

No discharge for violations of civil rights such as, for example, police brutality. However, these debts are already not dischargeable under Bankruptcy Code 523 for intentional bad acts.

#19 Improved Data Collection

Warren would invites bankruptcy filers to provide statistical information on racial identification, gender, and age.  Why not make this mandatory? What if they “identify” as a Martian? Perhaps we should just go with whatever their state driver’s license says?

#20 Lump-sum Personal Property Exemption

Warren’s plan provides for a standard federal personal property exemption that is adjusted by the number of dependents in the household. A single federal personal property exemption would greatly simplify the process and give rise to more national bankruptcy law firms since state exemption law complexity would be eliminated.

Does this preempt all state exemption laws? What about exemptions for personal injuries and other rights to compensation that are difficult to measure? Will all of these numerous state exemption laws be replaced by a single dollar federal exemption?

#21 Millionaire’s Loophole Closed

Warren would eliminate protect for self-settled trusts. She also seems to say that Spendthrift trusts would become property of bankruptcy estate.  Um, . . how?  State law governs what is property of the estate, and state laws say property in spendthrift trusts are not property of the debtor.

#22 Exemptions forfeited if debtors lie on bankruptcy schedules.

#23 Fraudulent transfer law strengthened.

Property transfers by deadbeat parents to trusts to avoid paid support would be reversed. The statute of limitations to reverse fraudulent transfers would be extended.  And, Warren would make it a federal crime to engage in or aid and abet or receive an actual fraudulent transfer.

Transferring property while insolvent becomes a crime? To receive a transfer becomes a crime? This is very dark.

#24 Disallow Bankruptcy Claims of Creditors that Violate Consumer Laws

Creditors would be barred from filing claims for expired debts. The FDCPA law would be amended to ban collection on expired debts.