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Friday, July 31, 2009

If I File for Bankruptcy, does the Automatic Stay Protect Co-Debtors?

Generally, the automatic stay provisions of the bankruptcy code at 11 U.S.C. § 362(a) apply only to the debtor filing for relief from the bankruptcy court. However, in certain circumstances, the fact that a debtor filed for Chapter 13 bankruptcy can stop collection action against co-debtors, even if the co-debtors did not file bankruptcy. The “co-debtor stay”, set out at 11 U.S.C. § 1301(a), is a section of the Bankruptcy Code that prevents collection action on consumer debts against co-debtors of the person filing for Chapter 13 bankruptcy for the duration of the bankruptcy case. The co-debtor stay operates to delay collection efforts against individuals close to the debtor who have obligated themselves on debts incurred by and for the benefit of the Chapter 13 debtor. Generally, the co-debtor stay applies with respect to any consumer debt for which another individual is also liable, and it continues until the Chapter 13 case has ended.

The obligation of the co-debtor does not disappear; the co-debtor stay only serves to postpone collection actions by the creditor. If you repay a consumer debt at 30 cents on the dollar through the Chapter 13 plan, your co-debtor will be liable for the remaining 70% after the petitioner’s debts are discharged. However, during the time you are in Chapter 13, co-debtors are protected from further collection action. A Chapter 13 plan may (but is not required to) seek to re-pay certain joint debts in full, in order to protect the joint debtor.

The co-debtor stay only applies to consumer debt and it only applies in Chapter 13. The co-debtor stay does not apply to Chapter 7 or Chapter 11 cases, and does not apply to non-consumer debts, which are usually tax debts, debts incurred with a profit-making motive, or debts relating to the dishonor of a negotiable instrument (such as a “bad check” debt). Many courts have determined, however, that Domestic Support Obligations (such as alimony and child support are regarded as consumer debts for the purposes of this chapter).

If you are considering filing a petition for relief under the Bankruptcy Code, the section you file under could have implications with respect to the co-debtors. If all (or a portion) of your debts are joint with another person, that fact could be one of many factors to consider when deciding whether to file a Chapter 7 or Chapter 13 petition.

Wednesday, July 22, 2009

Will I be able to keep my health insurance after the divorce?

Whether or not you can keep your health insurance after the divorce will depend on two factors, one of which is in your control and one of which is not. If you are currently on your spouse's health insurance, then they are required by the Rule 411 Automatic Restraining Order to maintain you on your health insurance during the pendency of the Divorce case. However, at the end of the case when you are divorced your status as an eligible dependent on their plan may change.

If your spouse's employer participates in a self-insured plan (usually only the case with very large employers), then the plan is covered by Federal law and not State law, in which case the employer can ignore the Massachusetts' law requiring eligibility of ex-spouses. This means that if your spouse's employer has a self-insured plan then no matter what the Court order states you will likely be terminated from your spouse's health insurance upon the divorce. At that time you will be eligible for COBRA, which is a program that allows for continuation of health insurance coverage for a set period of time so long as you pay 102% of the full premium.

If, however, your spouse's plan is not a self-insured plan then you will be eligible to continue coverage so long as you pay attention to the second factor, which is whether or not your Judgment of Divorce includes language requiring coverage. It is very important to consult with an attorney regarding the proper language to include in a Divorce Agreement to ensure that you will be eligible to continue to health insurance, if your spouse's employer allows for that option.

For more information on how to maintain or find health insurance after a divorce, check out this brochure prepared and distributed by the Massachusetts Attorney General's Office and Health Law Advocates entitled Staying Healthy: A Guide to Keeping Health Insurance After Divorce.

Tuesday, July 7, 2009

New Income Based Repayment Program May Reduce Student Loan Payments

Although student loan debt can almost never be discharged trough bankruptcy, a new program which went into effect on July 1, 2009 called Income-Based Repayment (IBR) may provide some relief for those who cannot afford high monthly federal student loan payments.

The U.S. Bankruptcy code at 11 U.S.C. 523(a)(8) specifically deems student loan obligations as “nondischargeable debt” (i.e., debt that cannot be discharged through a bankruptcy filing) absent a showing of “undue hardship”, which, as contemplated by the code, is a nearly impossible standard to prove.

Fortunately, the IBR program may provide some relief. IBR cannot be used to obtain an outright discharge of student loan debt, but it can help borrowers keep their loan payments affordable with payment caps based on income and family size; often capping IBR loan payments at less than 10 percent of their income household income. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.

IBR is available to federal student loan borrowers in both the Direct and Guaranteed (or FFEL) loan programs, and covers most types of federal loans made directly to students, but not those made to a student’s parent.

The IBR program requires that participants be qualified based on income, and to be eligible, it would take more than 15 percent of your income above 150% of federal poverty level to pay off your loans on a standard 10-year payment plan. IBR uses a sliding scale to determine your adjusted federal loan repayment amounts. If you earn below 150% of the federal poverty level for your family size, your required loan payment will be $0. If you earn more, your loan payment will be capped at 15 percent of your income above that amount. In most cases, that figure works out to less than 10 percent of your total income. A useful calculator to determine your eligibility is available here.

In some situations, your reduced payment under IBR may not cover the interest on your loans. If so, the government will pay that interest on your Subsidized Stafford Loans for your first three years in IBR. After three years and for other loan types, the interest will be added to the total amount you owe. While your debt may grow if your IBR calculated payments are calculated to be lower than the monthly interest, anything you still owe after 25 years of qualifying payments will be forgiven.

While student loan debt remains essentially nondischargeable, the IBR program can be used obtain meaningful relief from individuals seeking to reduce student loan payments to qualified participants.

If you are struggling with student loan debt, mortgage debt, credit card and consumer loan debt, the IBR program can be one part of a comprehensive legal strategy to address and resolve financial problems.

Monday, July 6, 2009

What if you were never born?

No, this is not a post about "It's a Wonderful Life". But I will tell you a story about a man who was told by the Town of Carver that he did not exist.

While in the Plymouth Probate and Family Court last Tuesday, June 30, 2009, waiting for the Judge to call my client's Motion for hearing, I was listening to the presentations made by other litigants in Court for hearing on that day.

One of these litigants was a quiet man. He was accompanied by his Wife, who did most of the talking for him. She explained to the Judge that her husband had requested a copy of his Birth Certificate from the Town of Carver only to discover that they had no such record. This was puzzling to her and her husband because he had grown up in Carver and lived much of his life there.

He had a binder of evidence including school records, an Affidavit of one of the women present at his birth, and even military records. This man, who the Town of Carver didn't think existed, had even served our country.

Although most of you are unlikely to encounter this type of existential dilemma, I thought I'd share with you the solution. If you are ever told that your birth record has been destroyed (and you were not recently visited by your guardian angel), then you should put together just such a binder and go to the Probate and Family Court in the County in which you were born. You will have to file a Complaint in Equity under M.G.L. Chapter 46 Section 4, and after providing notice to the clerk of said Town, you will be able to present to the Judge proof that you exist (other than your being there, of course).

This is, incidentally, the same process used for mothers who give birth to a child without a physician or hospital medical officer in attendance, if the clerk of their Town refuses to record the birth. Although, that situation is probably more likely, it's not quite as interesting as the man from Carver who was never born.

Thursday, July 2, 2009

Bankruptcy Blog and other Resources

In addition to providing answers to commonly asked questions on our website, we also try to provide links to other resources where you may find further information. These links include the Court websites, other government websites, and organizations that we either belong to or may have further resources that could be useful to the public.

In addition we will often include in our Twitter accounts, links to blog posts from other blogs that we believe you might find interesting. You can click here to connect with Attorney Trask or Attorney Kelsey on twitter.

One particular resource that you should review if you are considering bankruptcy is the Bankruptcy Law Network, where we often find great blog posts on numerous questions involving bankruptcies. Here are just a few examples:

San Diego: New Ruling Allows Student Loans to be Discharged in Chapter 13! http://ff.im/-4nJBn

How Do I Find a Good Deal on a Secured Credit Card? http://ff.im/-4FnH5

Do I have to be a citizen to file a bankruptcy case? http://ff.im/-4hCit

How to Value a Car for Chapter 13 Plan “Secured Claim” Purposes http://ff.im/-4a82w

How Long Will My Chapter 7 Take? http://ff.im/-46Odg

What Happens If A Creditor Contacts Me After My Bankruptcy? http://ff.im/-3LIbV

“Stealth” Plan Provisions: Confirmation of Chapter 13 Plan Did Not Alter Domestic Support Obligation http://ff.im/-3uuIL
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