Sacramento Bankruptcy and Divorce Attorneys Blog

April 22, 2010

Student Debtor’s Situation Precarious in Sacramento Area with Regard to Student Loan Overhaul and Newly Proposed Bankruptcy Legislation

President Obama signed sweeping legislation affecting thousands of college students along with the acclaimed health-care bill on March 30, 2010. This overhaul changes the way students will finance their higher education. Obama’s higher education overhaul encourages individuals seeking to borrow money to pay tuition and education related expenses to take the loans directly from the federal government instead of private lenders. The law also caps a graduate’s repayments of the loans to 10 percent of their salary, which currently stands at 15 percent. Designed to save the federal government $68 Billion dollars and streamline the entire lending process, students may nonetheless find themselves in the exact same situation as they do now if they cannot afford to pay their loans: STUCK.

Current bankruptcy laws allow a student to discharge his or her student loans only if he or she can show that paying the loan constitutes an “undue hardship.” The definition of “undue hardship” remains vague to most courts and has been applied to debtors inconsistently. Regardless, “undue hardship” continues to be a high standard for a student debtor to prove in bankruptcy court. Basically, this means for a student debtor to ensure that his or her student loans would be discharged through bankruptcy he or she would have to prove that she has no way of producing income; a difficult standard to achieve.

Legislation proposed this month, in the U.S. House of Representatives, seeks to alter the bankruptcy code and permit individuals to include private student loans with his or her Chapter 7 filing by having the private loan stripped off along with credit-card balances, gambling debts, and mortgages. According to Andrea Fuller’s article, Lawmakers Introduce Bills to Change Student-Loans Bankruptcy Policy, this new bill seeks to eliminate the “undue hardship” standard for private student loans. Surprisingly, however, the legislation remains completely silent with regard to a debtor’s inclusion of student loans in the bankruptcy that have been provided by the federal government.

April 19, 2010

Leyes de Bancarrota en la Zona de Sacramento sin Resolver con Respecto a los “Decapado-off” una Hipoteca de Segundo Sin Garantía por la Presentación del Capítulo 7

by Matthew D. Roy

Para aquellos de ustedes que viven en el área de Sacramento que tienen una segunda hipoteca sobre sus bienes inmuebles que es esencialmente “sin garantía” debido al hecho de que el valor de su casa ha caído por debajo del importe garantizado por su primera hipoteca puede ser capaz de detener la Banco de exclusión y salvar su hogar mediante la presentación de Capítulo 7. En el caso de In Re Lavelle, 2009 Bankr., Un juez de bancarrota para el Distrito Este de Nueva York permite a los deudores a anular la segunda hipoteca que mantiene el banco de su propiedad mediante la presentación de Capítulo 7, cuando el valor de su casa cayó por debajo de la cantidad garantizada por la hipoteca en primer lugar.

Dado que la jurisprudencia no se ha resuelto en el Noveno Circuito, cuyas normas se aplican a aquellos de nosotros que viven en el área de Sacramento, un deudor posiblemente podría prevenir la ejecución hipotecaria y salvar su casa siempre que puede darse el lujo de seguir haciendo los pagos de la primera hipoteca después de todas las demás deudas han sido dados de alta, además de la segunda hipoteca. Tiene sentido que los jueces locales se sintiera inclinado a interpretar el código de bancarrota de una manera similar como el órgano jurisdiccional en el Distrito Este de Nueva York desde un banco en una segunda hipoteca sin garantía no vería un centavo si la casa se ejecutado la hipoteca o la deuda es despojado de despegue y anuladas en virtud del Capítulo 7. Teniendo en cuenta la situación económica “nuevo comienzo” los principios que el capítulo 7 está diseñado para proporcionar a un deudor, y el número de personas que esta interpretación de la ley podría ayudar a perder sus casas, creo que los jueces serán cada vez más receptivos al argumento. Esta opinión se basa en una novedosa interpretación del código de bancarrota, sin embargo, y probablemente sería una ardua batalla legal. No obstante, In Re Lavelle muestra al menos un juez ha vuelto sensible a la situación económica actual y hay suficiente meneo habitación en la ley para proporcionar una base legal para hacer tal afirmación.

Como un abogado de bancarrota Sacramento he hablado con muchos clientes con este tipo de preguntas. La única manera de saber con seguridad es mediante la localización de un deudor que se encuentre en esta situación a un abogado que esté dispuesto a llevar el caso ante un tribunal local y actual del argumento. Esto es casi seguro que convertirse en un proceso sacado legal, pero los tribunales probablemente permitiría al deudor por lo menos a permanecer en la propiedad hasta que todas las apelaciones se han agotado y la decisión final, tal vez por el Tribunal Supremo de Estados Unidos, se ha hecho. Si usted cree que podría beneficiarse de esta interpretación de la ley puede estar en su mejor interés de consultar a un abogado familiarizado sobre el tema.

April 18, 2010

Sacramento Area Bankruptcy Laws Unsettled With Regard to “Stripping-off” an Unsecured Second Mortgage by Filing Chapter 7

by Matthew D. Roy

For those of you living in the Sacramento area that have a second mortgage on your real property which is essentially “unsecured” due to the fact that the value of your house has fallen below the amount secured by your first mortgage may be able to stop the bank from foreclosing and save your home by filing Chapter 7. In the case In Re Lavelle, 2009 Bankr., a bankruptcy judge for the Eastern District of New York allowed debtors to void the second mortgage lien held by the bank against their property by filing Chapter 7 when the value of their home fell below the amount secured by the first mortgage.

Since the case-law has not been settled in the Ninth Circuit, whose rules apply to those of us living in the Sacramento area, a debtor could conceivably prevent foreclosure and save their house so long as they can afford to continue making payments on the first mortgage after all other debts have been discharged in addition to the second mortgage. It makes sense that local judges could be inclined to interpret the bankruptcy code in a similar fashion as the court in the Eastern District of New York since a bank holding an unsecured second mortgage would not see a penny whether the house gets foreclosed on or the debt is stripped-off and voided under Chapter 7. Given the economic “fresh start” principles that Chapter 7 is designed to provide to a debtor, and the number of people that this interpretation of the law could help from losing their homes, I believe judges will become increasingly receptive to the argument. This view rests on a novel interpretation of the bankruptcy code, however, and would probably be an uphill legal battle. Nonetheless, In Re Lavelle shows at least one judge has become sensitive to the current economic situation and there is enough wiggle room in the law to provide a legal basis for making such a claim.

As a Sacramento bankruptcy attorney I have spoken with numerous clients with these types of questions. The only way to know for sure is by locating a debtor who finds himself in this situation to retain a lawyer who is willing to bring the case before a local court and present the argument. This would almost certainly become a drawn out legal process, but the courts would probably allow the debtor to at least remain in the property until all appeals have been exhausted and a final decision, perhaps by the United States Supreme Court, has been made. If you believe that you could benefit from this interpretation of the law it may be in your best interest to consult an attorney familiar on the subject.