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News and Updates from David R. Badger, P.A.
June 8, 2015

Hidden Omissions in Student Loan Transactions and Judgments

By: Ross J. Bromberger

    After mortgages, student loans have become the second-largest source of outstanding debt in the United States. According to The Institute for College Access & Success, a student loan borrower in North Carolina has an average student loan debt of $24,319 upon graduation from an undergraduate university. The total federal student loan balance is almost $1.2 trillion, more than double the 2007 total of $516 billion. This federal student loan balance does not include the $150 billion of private student loans made by banks and other private lenders. After origination, these private loans are packaged and sold on the secondary market to several investment trusts. However, with the downturn in the economy, Moody's has predicted the investment losses on these private loans to reach as high as 50%. In an attempt to stem their losses, the private student loan industry has turned to the courts to collect on the constantly escalating student loan defaults.

    Due to the nature of the private student loan industry (i.e. loans bundled into packages and sold on the secondary market to investors), the investment trusts have significant trouble proving ownership of the individual loans. In many cases, the borrower in default on their repayment does not answer the complaint or appear in court to defend the action. This inaction by the borrower allows the investment trust to receive a judgment against the borrower without proving ownership of the loan. Fortunately for residents of North Carolina, once a lender receives a judgment for a private student loan, North Carolina state law prohibits the lender from garnishing a debtor’s wages. Still, the lender does retain the ability to execute and seize the debtor’s real (if attached) or personal property.

    If you have received a complaint for defaulted student loans it is important to consult with an experienced attorney that can help defend your case. Contact us at David R. Badger, P.A. for a free consultation on your case. Our office is located in Charlotte, NC, and our phone number is 704-375-8875.

National information and Statistics from Bloomberg - The Lawsuit Machine Going After Student Debtors by Natalie Kitroeff.

June 18, 2015

Home Foreclosure and a Chapter 7 Bankruptcy Discharge

By: Ross J. Bromberger

    The Great Recession has left many homeowners underwater on their homes, that is, they owe more on their mortgage than their home is worth. Worse, the Great Recession has also left countless homeowners without the ability to keep up with their monthly mortgage payments. The combination of lower home values and a stagnant economic recovery have created a tidal wave of home foreclosures that leave the mortgage lender with a deficiency. A deficiency is the difference between the amount the mortgage lender is able to sell the foreclosed home for and the amount that is due on the home. After the mortgage lender sells a foreclosed home it will seek to recover the deficiency, if any, from the original homeowner by filing a complaint against them. Compounding the loss of the home, the judgment against the original homeowner can cause even more havoc on the homeowner’s credit report and limit their ability to purchase or rent a new home.

    In North Carolina, a real estate transaction consists of two main components, the promissory note and the mortgage, which is referred to as the deed of trust in North Carolina. The promissory note is the agreement between the mortgage lender and the home buyer that states that the buyer will repay the loan. The deed of trust insures the promissory note by securing the purchased home as the collateral. In North Carolina, the deed of trust is held by a third party called the trustee. Upon a default of the promissory note, the lender utilizes its foreclosure powers, which are outlined in the deed of trust, and moves forward with collection of the collateral. In addition to foreclosing on the home, the promissory note allows the mortgage lender to seek a deficiency judgment in order to cover any remaining balance that is owned on the home. 

    There are many reasons for which people file bankruptcy, from losing a job to incurring major medical bills, but generally, people are not aware that filing for bankruptcy can also be helpful when dealing with a deficiency judgment after a home foreclosure. When a bankruptcy is filed, part of the process is to discharge any eligible debts, meaning the lenders can no longer attempt to collect the debts. The debts that are generally eligible for discharge are called “unsecured debts”, and are things like credit card bills and medical bills. A deficiency judgment from the lender is also considered an unsecured debt because it is only an obligation to repay and therefore, can be discharged through a bankruptcy filing and all payment liability will be extinguished. This is one of the unsung benefits of a bankruptcy discharge. One that is typically not planned for, but powerful when needed. 

    As in all legal matters, there are unique situations to all cases so if you are in the process of a foreclosure it is important to consult with an experienced attorney that can help. Contact us at David R. Badger, P.A., for a free consultation regarding your case. Our office is located in Charlotte, NC, and our phone number is 704-375-8875.

July 20, 2015

Interplay of Bankruptcy and Domestic Issues – Potholes & Landmines

By: Ross J. Bromberger

    Divorce and bankruptcy are two increasingly and inextricably entwined areas of law, although the theories for the relationship vary: Divorce is the cause for bankruptcy due to the dissolution of the household leading to financial stress. Bankruptcy creates an additional layer of stress upon an already taxed relationship. Regardless of the reason, an issue that every bankruptcy attorney must be cognizant of at all times of representation is the inherent potential for a conflict of interest created by a separation or potential separation of married clients who are or may be joint debtors.

    In a joint bankruptcy, the bankruptcy attorney generally represents both spouses. As a result, the attorney cannot pick or choose sides, plan a strategy that will favor one client over the other or, even meet with one client without the presence of the other. Upon a separation, even the most simple of questions can give rise to a conflict of interest that will prevent the attorney from providing one spouse advice that could potentially hurt the other spouse immediately, or much further down the road. When a married couple hires a bankruptcy attorney, the attorney can represent both parties because the couple’s interests are presumed to be nearly identical. However, upon a separation or divorce, a conflict of interest is immediately created between the spouses. At this point the attorney should withdraw from representing both clients and advise each to seek separate counsel.

    A Chapter 13 bankruptcy requires between three to five years of plan payments before a case is discharged. Think about that for a moment. If the joint debtors cannot agree to get along in their marriage, who thinks they will be able to agree on all the things necessary to complete the bankruptcy, in addition to making the required payments over the next three to five years?
Chapter 13 presents a host of problems that Chapter 7 does not - the length of the payment commitment, and how it will be divided between the parties who will experience an increase of living expenses. The attorney representing separated joint Chapter 13 debtors will certainly be in the middle! How likely is it that the joint debtors agree on a resolution to each financial or domestic issue? How does the attorney ethically respond to one or both clients? If they disagree on any issue a conflict of interest is created.

    The strongly suggested method for handling a separation during the pendency of a Chapter 13 is to withdraw and to advise both clients to seek separate counsel. At that point, each client will receive an independent and conflict-free analysis of whether to remain in Chapter 13, bifurcate the cases, either or both convert to a Chapter 7, or seek a voluntary dismissal of the cases. In the end an attorney is not always required to withdraw. While not all divorces lead to significant acrimony and mandatory attorney withdrawal, most are riddled with potholes and landmines – both domestic and financial.

September 16, 2015

The Student Loan Discharge? What it could mean and how it could help

By: Ross Bromberger

    The idea sounds nice, but unfortunately it is not a reality for many Americans strapped with student loan debt. Under the current standard, it is virtually impossible to discharge student loans in a bankruptcy. When the bankruptcy code underwent its overhaul in 2005, resulting in a harder student loan discharge standard, the student debt level existing within the United States stood at less than $400 billion. Now the student debt level is more triple that, exceeding $1.2 trillion.  

    Education is not getting any cheaper either, the average family spent more than $24,000 last year on college and related expenses, much of that financed by guaranteed federal and private student loans. In 2005 the Institute of Higher Education Policy tracked 1.8 million student loan borrowers through the first five years of repayment. While a majority wished to repay their student loans, only 37% were able to make consistent on-time payments through the first 5 years. What happens to the remaining 63% who are either delinquent or in default?

    For almost all debts, an individual can turn to bankruptcy when an event has occurred resulting in delinquency or default of their debts. For student loans, the situation is uneven. Creditors of student loans bear no responsibility for the loans that fail. Every other creditor bears partial responsibility for a loan failure, and they share that failure in the bankruptcy process. When creditors are not faced with a possible bankruptcy discharge, they are more likely to push loans, where otherwise they would not.

    An overhaul of the student loan discharge is needed. Any liberalization of the student loan discharge will immediately put lenders on notice of the possible bubble they are creating. Additionally it will restore stability and economic life to millions of American families, who are currently just sitting on the sideline, not contributing to the economy.

    Right now, there seems to be stirring in Washington, D.C., typically on the issue of private student loans or for-profit educational institutions, and it is sure to be a talking point for many of the presidential candidates. Bankruptcy is undoubtedly not an option people enjoy turning to. But when forced into the position of a bankruptcy, it should have the ability to help reduce or restructure student loans, restoring the ability to participate and contribute to the economy.