But what sorrows me are the parents of those same students who have guaranteed or cosigned those loans.  The co signor is equally liable with the student for repayment of the debt. The cosignor may have no control over whether the loan gets deferred (with interest during deferment added to principal) or whether the student honors the committment to pay.  On Gene’s numbers, you can see in an instant why the student borrower might not be able to pay, even assuming the graduate got a decent job.  But the parents remain equally liable.

The cosigned loan is still a non dischargeable debt should the parents file bankruptcy.  I’m seeing a fair number of folks in their late 50′s and 60′s, nearing retirement, or enduring unemployment, and their kid’s student loan is a millstone around their neck.

Frankly, I’m waiting for a stalwart couple of a certain age for an opportunity to argue to a bankruptcy judge that repayment of the offspring’s student loans at this point in the parents’ life is an undue hardship.

Image courtesy of besighyawn.

I’ve adapted.  Chapter 13 became more like the alternative dumping ground if the means test closed off Chapter 7.  Often, the differing allowable deductions on B-22C meant the debtor foreclosed from 7 made minimal payments in 13.

But what galls me these days is the impact of the 9th Circuit BAP decisions of Smith and Martinez which disallow deductions for debt contractually due in the upcoming 60 months on liens to be stripped in the Chapter 13 and for property to be surrendered.  The result is that Chapter 7 becomes more attractive because there, the prevailing case law hews close to the statutory language that allows means test deduction for debts due over the life of a Chapter 13 plan.  What a blow to the sponsors of BAPCPA who were intent on forcing more debtors into Chapter 13 repayment plans.  (This has to be the only time I’ve mourned the thwarting of the intentions of the  BAPCPA proponents.  Remember the line from the Grinch Who Stole Christmas that the Grinch’s heart was just so many sizes too small?)

Very soon after BAPCPA was effective, I argued the Pak case to the BAP concerning whether the statutory look back period in B-22 was conclusive when the debtor’s future income was not only different but larger.  I argued that the law was to be applied the way it was written:  that Congress, in its infinite wisdom (and I tried not to giggle) thought it could write a formula to find the “can pay” debtors and that it intended to cut off judicial discretion to assess the allowance of expenses or the income to be available to fund the plan.  I lost and came away after oral argument with the sense that the judges on the panel wanted the old days back, when their judgment and good sense were the last word.  That was a perfectly fine world, but not the world after enactment of BAPCPA.  (Kagenveama from the 9th Circuit some month later vindicated the argument I made unsuccessfully to the BAP.)

With Smith and Martinez, I again sense that the BAP is chafing at the idiocy found in  BAPCPA.  I chafe too, but I don’t want to see a legal atmosphere where the words of the statute can be ignored if the judges see a way to “get” a debtor or to return to a world where their judgment is valued.  I treasure predictability, and if  BAPCPA gets applied as written(mean though it is), then I’ll figure out how to get my clients the best deal available under the law.  If however we have courts finding interpretations that carry them back to preBAPCPA days, then I feel like the Light Brigade: ” canon to the right of them, canon to the left of them…”  hoping I can ride boldly and well,  into the mouth of hell,…

In the mean time, I’m filing more Chapter 7′s.

A basic premise of Chapter 13 is that you must have money in excess of your on going living expenses to qualify.  Usually, these days, clients are in Chapter 13 because there’s something they must pay: mortgage arrears, priority taxes, or a car or two.  Yet these same debtors don’t see that a reasonable price to pay for time (to pay),  peace (from collectors), and discharge (of all the other debt) is a scaled down style of living.

While I try to explain that change is required, I hear the Victor Herbert song “I Want What I Want When I Want It” playing in my head.  I want to shake them and ask, “don’t you recognize what a marvelous opportunity to redeem your financial life this is?”

I haven’t started a list of the characteristics of clients with this attitude, but I’m going to.  To see it this often suggests either there’s  a client type that sees the world this way, or I’m missing something in my educational spiel.

Turns out my other bud, Kent Anderson, had written on the showing necessary for a hardship discharge for Lexis.

The exchange and cross pollination that is available to us as lawyers and consumers via the internet never ceases to energize me.

I wonder if they think I’m the offspring of Carnak the Magnificent, who provided answers BEFORE reading the questions.  I’m trying to train my staff to tell them to fax me the letter in question, so I can see what they are talking about before trying to interpret it.  In my imagination, it would be much more fun just to provide random answers….

CWW developed the Self Sufficiency Standard to measure the income necessary to meet minimal living standards more precisely that the federal poverty standard whose methodology is five decades old.

What struck me as a bankruptcy lawyer is the sense among bankruptcy trustees and creditors that someone making nearly $64,000 a year would be solidly middle class and reasonably comfortable.  Not so, according to this research.

Part of the problem may be as well that the family with that level of income may also think that it should entitle them to live better than just meeting their needs at a minimal level.  Hence, overspending.

Or, one of my observations over time is that access to credit has helped families mask the fact that they can’t really afford to live a comfortable, middle class life in the San Francisco Bay Area.

The process of filing bankruptcy is no more traumatic than the participant makes it;  the lead up to admitting you need bankruptcy relief is painful, but the steps to getting a bankruptcy discharge are painless.

We all benefit from freeing energy and money for the future of families;  we can be risk takers as business folks knowing that failure doesn’t have to blight the balance of our lives.

I am also grateful for a field of endeavor where I find continuing challenges:  new laws, nuances of state vs. federal law, and the never ending challenge of helping people in distress.  When so many other lawyers have abandoned the practice, I’m thankful that I find it satisfying and engaging after  32 years at the bar.

Reading the paper about corruption and judicial impotence in other countries, I treasure the fact that our legal system is, by and large, independent, honest, and potent.  We must not forget as a society that judges must be independent interpreters of the law, not the political view of the day.

Count your blessings and share them with others.  We are all in this life together.

First point, as far as I could see, she wasn’t wearing a black robe, so the issue of “allowance” was neither hers nor the UST’s.  Judges decide disputed questions and the UST is no more than a party in interest in a bankruptcy proceeding.

Second point, I’ve always thought that the schedules should reflect the facts.  My client has contributions to her 403(b) retirement plan deducted from her paycheck.  I duly show that on Schedule I, so that as far as possible, Schedule I reflects the current income and deduction situation.  Where does this person come from when she says we don’t “allow” scheduling of deductions?

Third point, if you want to argue that for purposes of the 707(b) analysis, retirement savings may not be an allowable deduction, make that argument, preferably not at the 341 meeting.  Think and speak precisely.

Then, there is the point that, in this case, the Income less Expenses calculation is $3400 underwater.  Is this exercise on the UST’s part a good use of scarce government resources?  Do they think there are $3400 worth of mistakes all of which cut in their favor?  Or is this just a matter of doing something so we justify our budget?  [Personally, I'm waiting to see the UST's professed interest in creditor abuse manifest itself.]

My suspicion is that the attitude of the UST’s office as being almighty slipped into this unfortunate’s choice of words.

Harney is clearly bothered by this choice by people who appear to be able to make the payments, but elect instead to default and lose the property.  In this and an earlier column, he raises the question of the morality of  elective mortgage default.

I’ve been chewing on that idea:  is there a moral issue when a borrower voluntarily defaults?  The law attaches  consequences to certain promises, such as the promise to repay money borrowed.  If the borrower is capable of repaying but does not, is that a moral failing?  Or is it nothing more than the weighing of the consequences of shunning a legal duty vs. the cost of performing the promise?

I tried thinking about this from the lender’s side of the transaction:  are there any moral obligations that the lender assumes when they make the loan?  Could the lender exercise a legal right (to foreclose, say) and yet violate a moral precept?  (All of this presupposes that corporations have morals, or moral duties, of course.)  Would a lender have a moral obligation to modify a loan in the absence of a legal obligation?

Or, is all that is involved in the mortgage loan transaction the undertaking to expose yourself to certain unpleasant consequences if you default?

It bears more thought.  I routinely ask bankruptcy clients whether it makes sense to continue to pay on mortgages where the loan balance is significantly greater than the property’s value.  I want them to consider the option of walking away in the course of the bankruptcy.

That’s essentially the same story I hear from clients with adjustable rate, pick a payment loans on their homes.  The financial professionals advising them talked only about the immediate consequences of the loan, and downplayed the risks.  Over and over, clients tell me that when they questioned the broker about how they were going to make the full principal and interest payment, they were assured the broker would get them a better loan before any damage was done.

Why is it that politicians opposing mortgage modification in bankruptcy want to demonize the unsophisticated borrower without regard to the supposed professionals who sold and profited from these exotic financial products?  Are we going to hear that the city council of Lewisburg, Tennesee bought more sewers for the town than they could afford?

When are we going to put our energies into a solution to the foreclosure crisis, rather than finding a scapegoat?