Law School Discussion

Should I file Bankruptcy...

Here it is another interesting article
« Reply #90 on: August 24, 2006, 06:51:08 PM »
More U.S. home buyers fall prey to predatory lenders

WASHINGTON — After Martha Lawler lost her job at Bell Atlantic in 1993, she fell behind on her house payments. Then her troubles really started. Desperate to hang on to her Brooklyn, N.Y., home, Lawler, 55, took out a new mortgage with a local finance company that carried an 18.25% interest rate, big fees that were rolled into her balance and a "balloon" payoff due in five years. Unable to make the higher monthly payments, Lawler refinanced into what she thought was a more affordable loan. The pattern continued through six lenders, 10 years and thousands of dollars of dubious charges that eroded her home equity and pushed her mortgage balance from $50,000 to $198,000.

"For 10 years I've been going in a circle, robbing Peter to pay Paul, trying to keep this mortgage up," Lawler said. "No fly clothes. No new car. My mortgage is my life." Lawler got caught up in a problem that has drawn increasing concern and action from state and federal regulators: predatory lending, loosely defined as loans with excessively high interest rates, fees or other provisions that can make them extremely difficult to repay.

The focus on predatory lending has coincided with the heady growth of the so-called subprime mortgage market. Subprime lenders offer higher-interest loans to people with troubled or non-existent credit ratings. While most subprime loans are not predatory, consumer advocates caution that all predatory loans are subprime. More than 25 states and a host of towns and cities have passed predatory-lending restrictions since 1999. Looking ahead, predatory home lending is expected to be a continuing financial and political issue for several reasons:

• The rise of subprime. Subprime mortgage lending grew an average of 25% a year from 1994 to 2003 and now is a more-than-$330-billion-a-year industry that provides about 1 in 9 U.S. mortgages. The growth has helped broaden homeownership — nearly 70% of American homes are occupied by their owners — and given a boost to minority home buying. Subprime lenders provide mortgages or home equity loans to people, including high-income borrowers, who don't qualify for conventional financing. Such lenders accept credit scores below the 620-660 threshold generally needed for prime financing and require less-stringent income documentation. But critics say many of the subprime lenders' clients could qualify for conventional loans. Subprime lenders offer mortgage rates that sometimes range into double digits, though they can be as low as 6% to 7% for those with near-prime credit. Costs rise, often steeply, as credit scores fall.

• Changing demographics. Recent immigrants and minorities, who will make up the bulk of new households and about half of first-time home buyers in coming decades, are far more likely than whites to take out subprime loans — and appear more likely to be victimized by predatory lending. Federal data show even affluent minorities are more likely than whites to take out subprime loans, and some consumer groups say minorities are unfairly diverted to the subprime market. The elderly population, too, is growing and may be vulnerable to predatory lending, because older homeowners have built up years of equity. AARP has a major initiative to combat predatory lending through education and litigation.

"Most of our clients don't go looking for loans," says Jean Constantine-Davis, an AARP attorney in Washington, D.C. "It very often starts out with a home-improvement loan. ... People think they're getting a loan for a chimney, (but) they've refinanced the house, rolled credit cards into it." In Memphis, consumer advocates say predatory lenders, including firms owned by blacks, have targeted African-American neighborhoods, resulting in a rash of foreclosures. Data from Boston and Chicago also show concentrated subprime lending in minority neighborhoods.

• The growth of the secondary market. More than $200 billion in subprime mortgages were resold, bundled into bonds and offered to investors as mortgage-backed securities in 2003. Mainline entities such as Lehman Bros. or mortgage giant Fannie Mae are major players in the market.

• Uneven regulation. Mortgage brokers, middlemen who match buyers with lenders, now originate 50% of subprime mortgage loans — about the same as for regular mortgages — but are lightly licensed and monitored by states. The number of mortgage brokerage firms has climbed to 44,000 last year from 7,000 in 1987. State laws on predatory loans don't govern national banks, which are exempted under a ruling by the federal Office of the Comptroller of the Currency. The banks fall under less-restrictive federal rules.

A turning point?

The debate over subprime lending may be at a turning point. Banks and brokerages with a stake in the booming subprime market complain legislatures have gone too far, creating a confusing patchwork of laws that hurt legitimate business and prevent consumers from getting loans. Many want federal legislation overriding state statutes. "You err on the side of letting people try to live the American dream if they want to buy a house," says Wright Andrews, a Washington, D.C., attorney who represents subprime lenders. Congress is poised to take up the issue next year, though legislation is far from a sure thing. State governors and attorneys general, already opposed to the Office of the Comptroller ruling, fear a federal power grab. Consumer groups, which had pushed for a federal law, worry about losing state protections. "A lot of people have been victimized. Not just poor people — middle-class, professional people, people of every stripe," says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.

Predatory-lending restrictions

What is a predatory loan? There's no official definition. Both sides say the issue is akin to a Supreme Court justice's description of pornography: You know it when you see it. States that have cracked down generally bar or limit these practices: loans that carry excessive interest and fees, exceed a borrower's ability to pay, include big balloon, or lump-sum, payments or penalties for early payoff or are subject to "flipping" — repeated refinancing with fees that strip out home equity.

North Carolina's 1999 law started the move toward predatory-lending restrictions. Mortgage giants Fannie Mae and Freddie Mac have set national standards for subprime loans that they purchase or package into securities with a guarantee for payment of principal and interest. Fannie, for instance, requires mortgages be based on ability to repay, not on home equity. It recently said it would not buy subprime loans that included mandatory arbitration clauses, which bar lawsuits. The industry, tarnished by a rash of legal settlements, has begun setting best practices, internal standards that govern lending activities.

How do consumers become victims? One of the biggest reasons is simple lack of education. Freddie Mac and the Department of Housing and Urban Development (HUD) have been reaching out to minority home buyers, saying many consumers don't understand how to get a loan or what they could qualify for. They may not have access to mainstream banks or they may lack a credit history or the proof of income needed for financing. Fannie Mae CEO Franklin Raines, citing HUD research, says subprime lending is three times as likely in minority neighborhoods. Other research suggests as many as half of those taking out subprime loans could qualify for conventional financing — and would pay lower interest. Subprime lenders hotly dispute those figures.

Pamela Caudill of Dayton, Ohio, is a first-time home buyer who purchased her house from her brother three years ago with a $52,000 adjustable-rate mortgage from a local firm. Though there were no major blemishes on her credit record, she was given an initial rate of 13.25%. In 2001, adjustable-rate mortgages nationally were carrying average initial rates of 5.8%. After missing a payment because of job troubles, Caudill was put into an expensive catch-up plan. The servicer who bought her loan did not post some payments. Because of the way the lender calculated Caudill's rate, her loan climbed near 15% from 2001 to 2004, as interest rates were falling nationally. "I was told one thing, and yet the opposite would happen," says Caudill. The National Community Reinvestment Coalition (NCRC), which bought her loan and financed a cheaper one, said Caudill could have qualified for cheaper financing if she had shopped around. The NCRC runs a national consumer rescue fund for victims of predatory lending.

Memphis Area Legal Services lawyers cite the case of Edgar McDaniel, a 68-year-old with a psychiatric disability and minimal reading ability, who in 2003 owed $4,800 on his home, and whose income was a monthly $756 Social Security check. After being contacted by a door-to-door salesman in summer 2003, McDaniel contracted for $16,500 of home improvements. To finance the project, lender American General Financial Services lent McDaniel nearly $34,691 at 12.81% interest, for payments totaling $78,789.32 over 15 years. Payments were $433, more than half his monthly income. According to the lawsuit against the lender and contractor, the contractor was paid $22,000, or $5,500 more than the agreed-to price, even though less than $7,500 in work was done, while thousands of dollars in other dubious payments were made. American General is fighting the charges, saying that McDaniel misrepresented his income, that lawyers overlooked missed documented payments and that it pressed the contractor to complete work.

Re: Should I file Bankruptcy...
« Reply #91 on: August 24, 2006, 06:58:51 PM »
Elzenia Pitchford, 77, also of Memphis, contracted for $20,000 in repairs to her home but, according to a lawsuit, was fraudulently sold a bill consolidation loan, with high upfront fees and monthly payments that were more than 88% of her Social Security income. She says she was promised new siding for her home, but the contractor did nothing to close up the many holes in the house's exterior. Now, she says, rats come and go through the house. And the heating system was left in such a mess that the fire inspector will not allow her to turn on the heat. She and an 11-year-old grandson who lives with her use the stove and small heaters to stay warm.

Vulnerable victims

Borrowers can also get into trouble when they are forced to take out loans at stressful points in their lives — a bout of unemployment or an expensive illness that erodes their credit score, even as it increases their need for cash. Priscilla White, 54, of Peabody, Mass., refinanced her 7% mortgage in 2002 to pay off $20,000 in debt tangled up in divorce proceedings. Her divorce attorney referred her to a mortgage broker, who offered to set her up with financing at a 6% interest rate. At closing, she discovered the rate was 11.25% but signed out of fear she'd be in legal trouble if the debts weren't paid. Six months later, White tried to refinance, only to discover the initial appraisal inflated the value of her house. Her income had been overstated in loan documents, with monthly payments exceeding her net income. Unable to get an equivalent mortgage, White, a secretary in a large law firm, started investigating. She settled out of court with the company and refinanced through NCRC with a 30-year mortgage at 7%.

"He was my divorce attorney. I thought he was going to be good for me," White says. "The documents were immense and a lot of the (fraudulent) stuff they put in the back. ... By the time you got to the good stuff, you were exhausted." Robert Armbruster, president of the National Association of Mortgage Brokers, says while most mortgage brokers are ethical, some engage in unscrupulous lending. "There are probably some bad apples out there. There are bad apples everywhere," he says. Armbruster would like to see a national registry of mortgage brokers and wants Congress to give states seed money to prosecute bad brokers. The Center for Responsible Lending estimated in a 2001 study that predatory loans cost consumers at least $9.1 billion a year. Lenders call those figures grossly inflated.

There are no comprehensive data on predatory lending, but there are clear signs it has been a problem:

• Household International, now HSBC, in 2002 agreed to change its practices and pay up to $484 million in consumer restitution for alleged predatory-lending practices in the subprime market. Household now funds the NCRC rescue fund.

• Citigroup in 2002 agreed to pay $240 million to resolve abusive-lending charges against its subprime subsidiaries, which the Federal Trade Commission says lured borrowers into high-cost loans through false statements.

• First Alliance Mortgage in 2002 agreed to a $60 million settlement with the FTC and six states.

"When the market expanded rapidly, there were excesses, and excesses created problems," says Mitch Feinstein of the National Home Equity Mortgage Association, a trade group for non-prime lenders. "We believe the market has responded very favorably by companies imposing much higher standards and fraud-reduction efforts."

Still, the legal cases continue churning.

"When I first started ... I wasn't in big trouble. I was running along smooth. But then I got jammed up, and I never could get out of it," says Allen Winston, 64, a Natchez, Miss., mechanic who was part of a lawsuit against lender Beneficial Mississippi. Winston and his wife, Mary, in 1987 took out a home equity loan to consolidate $18,000 in debts. The couple paid $3,300 in fees, and according to their law firm, was required to buy $2,261 of special insurance to pay off the mortgage if they died. Premiums for single-premium insurance, which some state laws bar, are collected upfront and added to a loan balance. After closing the deal, the Winstons were deluged with offers for more loans. Lenders sent letters pegged to Christmas or other expensive times of the year. After cashing a "check" that came with a solicitation, the Winstons found themselves in yet another loan.

Allen Winston, who left school after the eighth grade, and Mary, who attended through sixth grade, saw their original $22,500 loan gradually rise above $66,000, including $23,000 for insurance. Montgomery, Ala., law firm Beasley Allen Crow Methvin Portis & Miles represent the Winstons in arbitration with the lenders. Officials of HSBC, which now owns Beneficial, say they do not have permission from the firm to talk about the case. They note it dates before 2002, defend their lending record and add, "In light of our contract with the Winstons, arbitration is an appropriate way of resolving their concerns." Tom Methvin, managing shareholder for Beasley Allen, which has cases around the Southeast, says 90% of its predatory-lending clients are black.

'Paying ... the rest of my life'

Meanwhile, Lawler, the Brooklyn woman who signed multiple refinance loans, has gotten on with her life. The NCRC bought her mortgage in August, refinancing her into a 5%, 30-year fixed-rate loan. But she remains saddled with a high balance. "Renovations? Forget it. Whatever falls down, forget it. I'll just leave it until I have the money," Lawler says. "I'll be paying for it the rest of my life."

Re: Should I file Bankruptcy...
« Reply #92 on: August 24, 2006, 08:05:42 PM »
As I go through and read the other reports on HSBC I realize that I am just another sucker in a long list of people these folks have ripped off. We refinanced our mortgage in 2002 to pay off our credit cards.

Unbeknownst to us, they purposely appraised our home $11,000 higher than it should have been (we've been told by three other appraisers) and included a buy-down on the interest rate that we did not know about (they listed it as a "fee" on our paperwork) and the mortgage aka "sales" person continually told us we would never get refinanced with anyone else even though our credit scores were good.

The HSBC experience is a daily, on-going blood pressure blowing, headache-inducing nightmare!! They have withheld our payments to collect late fees (it takes a minimum of 16 days for them to cash my check!) They have continually screwed up our escrow, it is short every year even though our taxes and insurance never changes?! Yet they can never explain why it is short, if we don't pay it then we incur late fees and/or foreclosure notices.

They calculate our adjustable interest rate wrong constantly (it has escalated to 11.25%!) and then our only recourse is to write a letter and wait for a response that never comes. You can never get through to anyone in the States your call is automatically routed to India. There they have no other information than what your payment is, and it is wrong 99% of the time. They have no manager available to talk to EVER and they ALWAY say that it has to be handled by another department. I was actually told today when trying to fix the incorrect interest rate (says it should be 11.25% when they are actually charging 11.5%) that it has gone to the research department and they "don't have phones" unbelieveable!!!

We are totally upside down on our house and have no options HSBC will just keep increasing the rate and upping the escrow and there is nothing we can do. Can't someone go after these crooks?!

I would love to be in on a class action lawsuit! I have every bit of my documentation since day one!

Indianapolis, Indiana

« Reply #93 on: August 25, 2006, 05:14:16 PM »

Citigroup, formed by the 1998 merger of Travelers and Citicorp, is the largest U.S.-- based bank holding company. It engages in questionable high interest rate lending in low income communities across the United States, and now globally, through its CitiFinancial unit. Though its investment bank, Citigroup underwrites and trades in pools of loans issued by other predatory lenders. It has assisted Enron, WorldCom, and others; it has settled a slew of securities charges on the cheap. Citigroup finances and is involved in such environmentally destructive projects, including as a purchaser, despite contrary claims and its surreal inaccurate advertisements. Citigroup is nearly the definition of "predator."

Maria Flores was frightened. She was behind on repaying a personal loan, she said, and her finance company in Atlanta was threatening to have her arrested. Flores agreed to take out another loan, which turned out to be a second mortgage on her home. When she couldn't keep up with the new debt on her yearly take-home pay of $22,000, the loan company had another solution: yet another mortgage. She wound up paying an annual percentage rate of 17.99 - three times the market rate for home loans - and nearly $700 for life, disability and unemployment insurance that was written into the contract. It's a familiar story: a consumer with modest income or bad credit being charged astronomical interest rates by a predatory lending outfit. But Flores was not the victim of some shady storefront operation. She got her loans from a division of Citigroup, the world's largest financial institution. In recent years, the bank has aggressively swallowed up so-called subprime lenders, establishing itself as a leader in high-interest loans marketed to low-income, blue-collar and minority customers.

CitiFinancial, the bank's principal subprime unit, charges many of its 4.3 million customers double or triple the prices paid by consumers with Citi credit cards and conventional mortgages - annual interest rates as high as 22% on mortgages and 40% on personal loans. In addition, a host of lawsuits accuse CitiFinancial of packing loans with hidden fees and overpriced insurance that help shove unsuspecting borrowers into foreclosure or bankruptcy. "Citigroup is the leader when it comes to predatory lending," said Matt Lee, executive director of Fair Finance Watch, a New York-based consumer group. "They've got it down to a science." Citi denies that it engages in predatory lending, insisting that high rates are reserved for high-risk customers who might not otherwise qualify for a loan. CitiFinancial helps "working people like teachers, firemen, nurses and secretaries," said spokeswoman Maria Mendler. "Our customers come back to us time and again because they like our service, our people and our product."

The high-interest loans have certainly bolstered Citi's bottom line. CitiFinancial posted earnings of more than $1.3 billion last year -- nearly one-tenth of Citigroup's total income. But the bank's subprime business has also sparked federal scrutiny and class-action lawsuits. In Pennsylvania, borrowers have accused CitiFinancial of using early-payment penalties to trap them into costly loans. A state appeals judge called the case "yet another vignette in the timeless and constant effort by the haves to squeeze from the have-nots even the last drop." Last fall, Citigroup agreed to pay $240 million to settle Federal Trade Commission (FTC) charges and a class-action lawsuit alleging that Associates First Capital, a finance company purchased by Citigroup in 2000, had manipulated 2 million customers into buying overpriced mortgages and credit insurance. It was the largest settlement in FTC history.

Citi insists that the predatory practices ended when it acquired Associates. Over the past two years, the bank has introduced a host of reforms, pledging to offer lower-cost loans to customers who have good credit but are paying prices far above the prime rate. So far, though, Citi has yet to make good on its promise. The lender has identified more than 25,000 customers being charged high interest who qualify for prime-rate mortgages. By the end of last year, however, just 110 had been moved into lower-rate loans. Former CitiFinancial employees report that the company has done little to change its ways. Kelly Raleigh, a former branch manager for CitiFinancial in Jefferson City, Tennessee, said Citi continues to pressure loan officers to ratchet up interest rates and sell more insurance. The message from above, she said, is clear: "Don't get in trouble. But you still have to do this. If you don't hit your quota, you're not gonna have a job."

In addition, borrowers say they are still being saddled with hidden costs. Gaylon Barnes, a heating and air-conditioning repairman in Atlanta, said CitiFinancial stuck him with more than $800 in unwanted insurance on a home loan in November. If Citi has reformed, he said, "I can't tell." In April, Barnes was one of 50 borrowers from the South and Midwest who traveled to New York to stage a protest at Citi's annual shareholders meeting. Organized by an advocacy group called the Neighborhood Assistance Corp. of America, the demonstrators drove through the night from Atlanta, arriving in a convoy of 8 passenger vans after 17 hours on the road. Just before the meeting, however, officials from Citigroup headed off a high-profile protest by agreeing to consider reworking the loans of thousands of borrowers who have lodged complaints. Those who made the trip say they are pleased that Citi agreed to concessions -- but some remain skeptical that the financial giant will voluntarily end its abuses. "They're trying to pacify the activists," said Maria Flores, who joined the convoy. "I think they'll take their sweet time responding -- until they're really forced to."

Re: Should I file Bankruptcy...
« Reply #94 on: August 25, 2006, 06:07:28 PM »

Wells Fargo has an alternative loan program that doesn't require certification from the school. You can borrow as much as you can qualify for based on your credit

No wonder why! Wells Fargo is a totally irresponsible financial institution that preys on unsuspecting, naive students and parents!

Re: Should I file Bankruptcy...
« Reply #95 on: August 25, 2006, 09:19:33 PM »

The bankruptcy courts originally treated student loans the same as any other unsecured debt. Student loans could be listed in a Chapter 7 filing and fully discharged. However, in 1976 Congress modified the Higher Education Act of 1965 and required student loans to be nondischargeable unless: (a) the debt first became due more than 5 years before the date of filing of the bankruptcy, or, (b) failure to discharge the debt would cause "undue hardship" to the debtor or to dependents of the debtor. In 1990, Congress extended the 5 year rule to 7 years and eventually eliminated the time limit altogether in 1998. Thus, the only option debtors currently have for bankrupting their student loans is to prove repaying their student loans would cause an "undue hardship."

Student loans are listed in the Chapter 7 bankruptcy as one of the outstanding debts held by the debtor. The debtor must then file an Adversary Proceeding in conjunction with the Chapter 7 bankruptcy case within 60 days of the meeting with the creditors. The adversary proceeding is against the Department of Education (or other guarantee lender) and asks the court to determine if the "undue hardship" clause applies. If the court decides §523(a)8 applies to the case, then the student loans are discharged through the Chapter 7 bankruptcy.

Over the past quarter-century, courts have developed many tests to determine the existence of undue hardship. There are significant differences between the tests and their outcomes. It is often said, "that there are as many tests for undue hardship as there are bankruptcy courts." Currently, there are 4 tests that most courts use to determine the dischargeability of student loans under the undue hardship provision.

  • "Johnson Test" - P. Higher Educ. Assistance Agency v. Johnson (In re Johnson), 5 Bankr. Ct. Dec. 532 (Bankr. E.D.Pa. 1979)
  • "Bryant Poverty Test" -- Bryant v. Pa. Higher Educ. Assistance Agency (In re Bryant), 72 B.R. 913 (Bankr. E.D. Pa. 1987
  • "Totality of the Circumstances Test" -- Andrews v. South Dakota Student Loan Assistance Corporation, 661 F.2d 702 (8th Cir. 1981)
  • "Brunner Test" -- Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner), 831 F.2d 395 (2d Cir. 1987), aff'g 46 B.R. 752 (Bankr. S.D.N.Y. 1985)

It should be noted that even in courts that use the same test, the "subtleties" by which the tests are applied often produce inconsistent results.

Many courts have harshly and narrowly ruled that debtors cannot discharge educational loans unless they can demonstrate "a certainty of hopelessness" about their long-term financial condition.

The Brunner test has currently been adopted and used in the 2d, 3d, 6th, 7th, and 9th Circuit Courts. Not formally adopted, but has been used in the 5th, 10th, and 11th Circuit Courts. Although the debtor in that case lost and was rquired to make payments on her student loans, the Brunner test became the most widely used legal instrument for determining undue hardship.

The court articulated the belief that student loans are different from other unsecured debt because there is little or no consideration given to the borrower's credit status. Further, student loans require no co-signers or collateral. For access to this easy money through federal loan programs, the government demands quid pro quo. In return for obtaining a government loan, students are denied access to bankruptcy and discharge of their student loans in all but the most hopeless of circumstances.

To discharge student loans under the undue hardship rule as specified by Brunner, it must be shown: (1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living ... if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans. All three prongs must be satisfied for a student loan debt to be discharged.

The first prong analysis contains two steps: (1) observe the debtor's "lifestyle attributes" to determine his or her current standard of living, and (2) determine if forcing the debtor to make loan repayments will prevent him or her from maintaining a minimal living standard. This standard does not require showing that making minimum loan payments would force the debtor to live at or below the poverty level, but does require showing that the debtor is more than simply strapped for cash. The debtor is expected to make personal and financial sacrifices top repay student loan. If the debtor is successful at proving the first prong, then the second prong is evaluated, otherwise the process is stopped and the loan is not discharged.

The second prong is the most difficult of the three to prove. In essence, the debtor must convince the court that there is no hope for improvement in the future income. The court recognized that this prong is similar to a finding of "certainty of hopelessness" accepted by other courts. However, as the Brunner court itself conceded, "[p]redicting future income ... is problematic." Courts who have used the Brunner test have looked for "unique" or "exceptional" circumstances that impact future employment and earnings. These circumstances include: "illness, lack of usable job skills, the existence of a large number of dependents, or a combination of [the three]." The second prong takes into account any possibility that a debtor's financial situation could improve in the future, and as the Second Circuit noted on appeal, "more reliably guarantees that the harship presented is 'undue'."

The third prong of the test was created "in accordance with the legislative intent behind §523(a)8 of preventing intentional abusers from filing [for] bankruptcy immediately after graduation and making no effort to find employment and to make payments on their student loans." Here, the debtor must show a "good faith" effort was made to repay the loan. Factors considered by the court include, "the number of payments the debtor made, attempts to negotitate with the lender, proportion of loans to total debt, and possible abuse of the bankruptcy system."


Re: Should I file Bankruptcy...
« Reply #96 on: August 28, 2006, 04:31:10 AM »

Under certain circumstances you can discharge your obligation to repay a student loan in bankruptcy. The criteria is set out at 11 U.S.C. 523 (a)(8. Currently your loan may be discharged only if the first payment became due on the debt at least seven years before the bankruptcy was filed.

Most consumers are aware that there are companies that keep track of their personal financial transactions – installment loans, mortgages, credit card accounts, bankruptcies and judgements. These items are assembled by the three main credit bureaus into a credit report, which is available upon request by lenders, employers and anyone else with whom a consumer might do business. The credit report tells these people, in a simple, summarized form, whether or not a consumer is worthy of more credit or another loan. What few people realize is that there is another firm that keeps track of the banking transactions by American consumers, and that information is available only to banks in the form of a debit report. You may not have heard of a debit report, but it can affect you in ways you may not even realize and can prevent you from opening a bank account.

The debit reports are compiled and maintained by a company called ChexSystems. ChexSystems maintains a database of banking transactions by consumers, and creates a “debit score” based on deposits, withdrawals, overdrafts, and whether or not an account has been forcibly closed. Generally speaking, you probably won’t have an entry in ChexSystems’ database unless you have a history of writing bad checks, overdrawing your account too much, or having your account closed by your bank. On the other hand, people sometimes have entries put in the database by error and don’t find out about their entries in the database until their request to open a checking account is denied by their bank. Most banks now use this system, and while some provide a little latitude, most will refuse to do business with anyone who has a negative entry in the database.

The system was originally designed simply to keep track of people who wrote bad checks, but over the last three decades it has evolved into something much more elaborate. Consumers are entitled to receive a copy of their report from ChexSystems, but few people request one, as most people have never heard of the company or their product. The debit score for an individual is only available to banks. Since few people can do without a bank account these days, it’s worthwhile to at least be aware of this system

Re: Should I file Bankruptcy...
« Reply #97 on: August 31, 2006, 06:37:15 PM »
What has ChexSystems to do with what bbgun says?  ???

« Reply #98 on: September 01, 2006, 03:14:06 AM »

MBNA and Bank of America (BofA) already merged. The $35 billion deal creates a combined financial giant with 20% of the U.S. credit card market. Both companies have a track record of lending practices that harm consumers. Bank of America has a strikingly disparate lending record and is extensively involved in subprime lending.  MBNA's record of mortgage lending is questionable, and has a history of spending heavily to influence federal legislation that will increase its own profits at consumers' expense.

The two companies and their employees have given federal candidates and parties nearly $22 million over the past 15 years — making a merged BofA-MBNA America's top corporate contributor. BofA made more than 2.4 million in campaign contributions last year. In 2004, MBNA surpassed Enron as the single largest donor to George W. Bush.  MBNA showered millions on federal candidates (more than 1.5 million in 2004 alone) as it took a leading role lobbying for bankruptcy "reform" -- legislation passed by Congress and signed by Bush on April 20, 2005 that will make it much harder for consumers to file for bankruptcy.

MBNA is one of the more aggressive enforcers of "risk-based repricing" or "universal default" contracts, in which a credit card lender scans consumer credit reports frequently and raises interest rates on existing balances if it doesn't like what it sees. If something as small as an unexpected doctor's bill goes unpaid, or a consumer's overall debt load goes up, it can mean huge changes in a consumer's financial picture. In one case an MBNA customer's credit card payments shot up from $100 per month to $300 per month when MBNA decided that it didn't like other factors in the consumer's credit picture -- despite the fact that the consumer had never gone over her limit or been late with payments.

Driven by consumer anguish, a few legislators have begun to look more closely at banning this practice. Across the big pond, the U.K's Office of Fair Trade has begun an investigation of MBNA's European affiliate, looking into what it calls "alleged unfair contract terms" and studying how it establishes late, overlimit and returned check fees.

Customers who call to complain about the practice have said that they frequently encounter rude, confrontational customer support staff who seldom use their discretion to lower rates to anything like previous levels. Even if they do work things out with MBNA staffers, complainants say, in some cases agreements change from day to day depending on who they speak with at any given point.

Re: Should I file Bankruptcy...
« Reply #99 on: September 01, 2006, 06:34:43 AM »

    • "Brunner Test" -- Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner), 831 F.2d 395 (2d Cir. 1987), aff'g 46 B.R. 752 (Bankr. S.D.N.Y. 1985)

    It should be noted that even in courts that use the same test, the "subtleties" by which the tests are applied often produce inconsistent results.

    Many courts have harshly and narrowly ruled that debtors cannot discharge educational loans unless they can demonstrate "a certainty of hopelessness" about their long-term financial condition.

    The Brunner test has currently been adopted and used in the 2d, 3d, 6th, 7th, and 9th Circuit Courts. Not formally adopted, but has been used in the 5th, 10th, and 11th Circuit Courts. Although the debtor in that case lost and was rquired to make payments on her student loans, the Brunner test became the most widely used legal instrument for determining undue hardship.

    The court articulated the belief that student loans are different from other unsecured debt because there is little or no consideration given to the borrower's credit status. Further, student loans require no co-signers or collateral. For access to this easy money through federal loan programs, the government demands quid pro quo. In return for obtaining a government loan, students are denied access to bankruptcy and discharge of their student loans in all but the most hopeless of circumstances.

    To discharge student loans under the undue hardship rule as specified by Brunner, it must be shown: (1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living ... if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans. All three prongs must be satisfied for a student loan debt to be discharged.

    Every undue hardship claim is reviewed in three areas:

    Characteristic A-- Current Living Condition and the Impact of Repaying Loan on "Minimal Living" Standard

    Characteristic B-- Prospects for Repaying the Loans

    Characteristic C-- Good Faith and Loan Repayment

    Characteristic A -- Current Living Condition and the Impact of Repaying Loan on "Minimal Living" Standard

    Characteristic A explores two conditions: (1) the debtor's current living condition, and (2) whether repaying the student loans will push the debtor to, or below, the poverty level.

    Condition 1: Every court reviews the debtor's current living condition and evaluates it against the Federal Poverty Guidelines. Rightly or wrongly, debtors with incomes above poverty will be scrutinized by the courts to assure all expenses are "minimized." The court will challenge expenditures for gym or video membership, Internet service, pet expenses, child or adult care, beauty salon, and more. Expenditures will be compared to an "idealized" debtor of similar situation but at the official poverty level. Expenditures that deviate from this ideal must be explained in terms of being necessary and extraordinary (e.g., drug needles and insulin for debtors or dependents who are diabetic), related to finding work (e.g., need for the Internet service), or related to keeping work (e.g., buying tools required for work or gym membership to relieve pain).

    In so many cases, debtors make a strong showing for their situation only to have the court reject the claim and tell the debtor to get a part-time minimum-wage job and use that money to make loan payments. Regardless of how laughable or tragic this may seem, it happens frequently. Thus, the debtor needs to account for his or her time working or providing dependent care, or both.Debtors need to clearly point out to the court that asking the debtor to take on any more work would push him or her over a standard workweek, and that would be an undue hardship.

    Condition 2: Once the court is satisfied the debtor has minimized living expenses, the court evaluates whether repaying the student loans will push the debtor down to or below the poverty level. If the debtor's net income drops below the poverty level, the debt may be discharged. Some courts have granted "partial discharges" in situations where repaying the entire loans would be too severe. Partial discharges are controversial and may not be legal under certain circumstances.

    Characteristic B -- Prospects for Repaying the Loans

    Courts evaluate debtors' prospect for improved future income. Even though courts recognize that predicting future income is problematic, it hasn't stopped the practice. In general, the debtor must show there are "unique" or "exceptional" circumstances that impact future employment and earnings.

    Category 1 -- Personal Limitations

    Debtors need to address in detail any personal limitations that may impact the ability to obtain appropriate employment. Courts have enumerated three instances (or combination thereof) of unique or exceptional personal circumstances and includes: (a) medical limitations, (b) support of dependents (and their medical conditions, if applicable), and (c) lack of usable job skills. These need to be described in detail and with supporting documents.

    (a) Medical Problems

    If you have medical problems that contributed to your bankruptcy, there are 3 things you will want to show the court:

    1. Your medical condition contributed to your bankruptcy. Give a complete history of your medical condition and subsequent loss of work and income.

    2. The costs related to the medical condition are the primary cause of bankruptcy. Courts are often unaware how devastating medical bills can be and how medical conditions can push people into bankruptcy and continued poverty.

    3. Finally, that your medical condition will continue into the future, most likely become worse, and that it will be impossible to make payments on the student loans.

    Most debtors make a good showing on the first 2 items above. The real problem is convincing the court that the medical problems will persist for at least 10 years, thereby impacting the debtor's ability to make student loan payments. This is a fuzzy area in which courts are inconsistent when interpreting the law.

    (b) Dependents

    Dependents cause time constraints for debtors who otherwise could use the time for employment. Thus, the larger the number of dependents and the time involved in their care directly impacts the debtor's ability to repay student loans.

    Children:Courts make the aasumption that children will leave home at 18. Thus, courts will calculate when the youngest child is expected to leave home and try to determine if the debtor would be capable of resuming payments on his or her student loans at that time. Extenuating circumstances would include a disabled child who continues to reside with the parent.

    Spouse, Civil Union, or Domestic Partner:Courts are sensitive to the situation where debtors provide financial and emotional support for medically ill spouses (whether by marriage, Civil Union, or Domestic Partnership). Unlike with children, there is no assumption the spouse will leave. Even still, you can combine the care of a medically ill spouse with other factors that will impact your future ability to earn.

    Elderly or Medically Ill Parents or Siblings:There have been a number of cases where courts have shown themselves insensitive to debtors who take care of elderly or medically ill parents or siblings. The courts question why the debtor is taking care of these people. It may seem obvious to the debtor, but not to the court. Thus, you need to make a strong case as to why it is they, and not their siblings, parents, or government taking care of these people. If this is your situation, you may want to discuss your moral or religious convictions that have influenced you to be the caretaker of these persons. Too often courts take the position that the debtor should not take on this responsibility and, instead, focus on paying back student loans.

    (c) Lack of Useable Job Skills

    Many debtors filing bankruptcy have student loans from training programs they either did not complete, or the program was of such dubious value that the debtor gained no improved job skills. Courts have been sensitive to debtors who lack useable job skills. They are aware that without proper job skills, it is very difficult for debtors to obtain high-paying employment and, subsequently, be able to make student loan payments.

    Quite the opposite problem is highly educated debtors who also find they are unable to find work. It is not uncommon to find unemployed M.A.s and Ph.D.s. There is a social and court bias that believes highly educated people are guaranteed employment. Nothing could be further from the truth.[/list]