On January 11, 2016, the U.S. Supreme Court refused to hear an appeal presented by a would-be lawyer trying to discharge in bankruptcy more than $260,000 in business and law school debt. The debtor in the case graduated from law school but repeatedly failed to pass the bar exam. In 2012 he filed a Chapter 7 bankruptcy stating he could not repay his student loan debt due to alcoholism, depression and a criminal record. He argued his circumstances made it impossible for him in getting a job. He lived with his mother, who supports their household with her Social Security benefits.

The issue of discharging student loan debt has not been uniformly addressed by bankruptcy courts. In general, the issue is whether requiring the debtor to repay student loan debt will cause “undue hardship.” But the term “undue hardship” was not defined by Congress in the U.S. Bankruptcy Code and the lack of definition of what “undue hardship” means, has lead to an uneven interpretation of the term. Over the years, the bankruptcy courts have basically followed one of two standards to define “undue hardship.” The majority of courts (including the bankruptcy courts in Illinois), use a more strict definition of the term, which makes it very difficult to discharge student loan debt, leaving the majority of borrowers unable to get student loan relief in bankruptcy.

The stricter test, which is followed in Illinois, looks to whether a debtor can maintain a minimal standard of living if forced to repay the debt and whether current financial hardships are likely to continue for a long period of time. This test requires the debtor to meet three requirements: 1. The debtor must show he or she cannot maintain a “minimal” standard of living for themselves and their dependents, if forced to repay the loans; 2. The debtor must show additional circumstances exist indicating his or her financial affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3. The debtor must have made good-faith efforts to repay the loans․

The less strict definition of “undue hardship,” used by a minority of bankruptcy courts, looks to the debtor’s “totality of circumstances,” and makes it a little easier for a debtor to get rid of student loan debt. Under this less strict test, the court looks at: (1) the debtor’s past, present and reasonably reliable future financial resources; (2) a calculation of the reasonable living expenses of the debtor and any dependents; and (3) any other relevant facts and circumstances.

In many ways, both tests of what “undue hardship” means, are really the same, as both basically analyze many of the same factors. Both tests also analyze whether the debtor has made payments on the student loan debt. The would-be lawyer, whose case was not heard by the U.S. Supreme Court, argued the more lenient test should be used and under that test, his student loan debt should be discharged as part of his Chapter 7 bankruptcy. But, it appears the would-be lawyer did not make payments on the debt he was seeking to erase and, arguably, even under the less strict test, his student loan debt would not have been discharged due to the lack of payments over an extended period of time.

Possibly, by refusing to accept the case of the would-be lawyer, the U.S. Supreme Court was implicitly saying there is no conflict between these two tests, as they both essentially look at the same factors to determine whether student loan debt should be discharged in bankruptcy.

Certainly, the Supreme Court had the opportunity to hear the case and adopt a better defined rule or adopt its own rule to determine dischargeability of student loan debt, especially in light of today’s economic conditions and the fact that total student loan debt now exceeds $1.2 trillion, according to the Consumer Financial Protection Bureau. But it didn’t. The refusal of the Supreme Court to hear the case does leave in place an arguable split between federal appeals courts as to the proper standard to be applied to determine whether the requisite “undue hardship” exists when a debtor seeks to discharge student loans. And in Illinois, the law remains the stricter test is used to determine dischargeability, which makes it almost impossible to discharge student loan debt in bankruptcy.

So, do you think the U.S. Supreme Court should have heard the would-be lawyer’s case? What standards do you believe should be used to determine whether student loans should be discharged in bankruptcy? Should a strict test be followed? Should the debtor’s total circumstances be reviewed? Should a period of time pass before a debtor can even attempt to have student loan debt discharged in bankruptcy? Should the debtor’s future income possibilities be taken into consideration? Should the debtor’s past efforts to make payments on the student loan debt be considered? Let me know what you think.

If you have student loan debt, call me to discuss your situation in light of the current law. You may have other options available to you, separate from bankruptcy, to address student loan debt. Call to speak with an experienced bankruptcy attorney about your financial circumstances. We can help you rid yourself of excessive debt and even if you remain with student loan bills, by getting rid of other debt, it may become much easier to make payments on non-dischargeable student loans. There is a better way.

Together, we can make it better.

Liability Coverage. Generally, every car insurance policy will minimally provide what is known as “Bodily Injury Liability” or “Liability” coverage to the policy holder. Liability coverage is mandatory in Illinois and is provided in every car insurance policy that is sold in Illinois. Liability coverage will pay for injury or death to another when the driver is at fault or negligent. In addition to requiring car insurance policies to provide liability coverage, Illinois also requires the liability coverage amount to be a minimum of: $25,000 for the injury or death of one person in an accident. Illinois also requires a minimum liability policy coverage amount of: $50,000 for injury or death of more than one person in an accident.

Uninsured/Underinsured Coverage (UM/UIM). Uninsured motorist coverage is insurance that will pay the injured owner of a vehicle when the accident and resulting injuries are the fault of another driver who does not have insurance coverage on their vehicle or is “uninsured.” With this type of insurance coverage, the injured driver’s insurance company will provide compensation when the at-fault driver does not have any liability coverage. The insurance company essentially acts to provide liability coverage for the uninsured driver. The minimum policy limit amount provided for uninsured motorist coverage is usually the same as the liability coverage amount under the policyholder’s insurance policy.

Underinsured motorist coverage is another type of car insurance coverage that will make payment to the policyholder when they are injured by another driver and that driver does not have enough liability coverage to adequately compensate the injured policyholder. The at-fault driver is essentially “underinsured.” A policyholder can purchase car insurance and include underinsured motorist coverage as part of the car insurance policy. The underinsured policy limits will vary depending upon how much coverage a policyholder wishes to purchase. Of course, as in any type of insurance coverage, the higher the policy coverage amount, the more expensive the premium to purchase that specific type of insurance coverage.

Property Damage Coverage. Property damage insurance coverage will pay for the damage to another’s property; not the policyholder’s property. This car insurance coverage is also mandatory in Illinois and must be in the minimum amount of: $20,000.

Medical Payment Coverage. Medical payment coverage (or “Med Pay”) will pay up to the medical payment policy limit amount for medical bills incurred by the driver/passenger(s) who are in an insured car that is involved in a car accident, regardless who caused the accident. This type of car insurance coverage is like medical insurance coverage for the injured occupants of an insured car, up to the Med Pay policy limits amount. Unlike medical insurance, there is no deductible applied when using Med Pay coverage to pay for medical bills that are the result of a car accident. And, unlike medical insurance, Med Pay will only pay for medical bills that are the result of a car accident, not any other type of medical expense. This insurance coverage is optional.

Property Damage For The Insured. This insurance coverage will pay for damage caused to an insured’s car, even if it is the insured’s fault that caused the damage to the insured’s car. The cost for this type of insurance will depend upon the type of car that is being insured. In other words, the more expensive the car, the higher the insurance premium, as it generally costs more to repair a newer more expensive car than to repair a less costly older vehicle.

Comprehensive Coverage. Also known as “COMP,” this insurance covers your insured vehicle for physical damage or losses resulting from incidents, other than a collision, like theft, vandalism, glass damage like a broken windshield, damage caused from hitting an animal or bird, damage from falling objects and damage caused by severe weather or a natural disaster, like wind storms, hail, hurricane, tornado, etc. Think of Comprehensive insurance as “other than collision” coverage because it generally will pay for incidents that are not the result of the insured vehicle being in an accident.

Towing/Rental Coverage. As the name implies, towing coverage will pay for the cost of towing a policyholder’s vehicle and rental coverage will pay for the cost of a rental car, up to a certain amount, for each day a policyholder’s car is inoperable after an accident, due to the car being repaired or due to a total loss and the policyholder needs time to replace the damaged vehicle.

As you probably know, the cost of the different types of insurance coverage and car insurance, in general, can vary among insurance companies. The cost of car insurance can also vary among states. A recent article appearing in the Personal Finance section of CNBC’s website entitled How much does car insurance cost in your state?, identified the most and least expensive states to purchase car insurance. There are many factors that go into determining the cost of car insurance, as the article notes, from state mandated insurance requirements, to the number of accidents that take place in a particular state. Although it may not be feasible to move to a particular state, solely to save on car insurance premiums, we can shop for car insurance among the many insurance companies and understand the different kinds of coverage available and how much insurance coverage we need. We should buy the type of car insurance that best meets are needs and not everyone’s needs are the same.

So, what type of car insurance coverage do you have? Do you know your policy limits for the various types of car insurance you have? Do you know what insurance coverage you are paying for when you pay your car insurance bill? Do you have more than the state minimum amount of car insurance coverage? Do you need more than the minimum? Next time you sit down with your insurance agent, make sure you understand what you are paying for and what you are buying when purchasing car insurance.

Call an experienced injury attorney to discuss your specific needs so you can be better informed as to the different kinds of car insurance and what best suits your situation, the next time you purchase car insurance. We can help you make informed decisions when buying car insurance. There is a better way.

Together, we can make it better.

Most people I sit down with to discuss alternatives to getting rid of excessive and over burdensome debt, often by filing bankruptcy to get debt relief, will inevitably ask me the question: won’t a bankruptcy hurt my credit score? A legitimate question to ask a bankruptcy attorney, as filing bankruptcy will probably affect one’s credit score; many times positively (I will answer the question below), it continues to amaze that many people are concerned more with their credit scores when facing what is usually: 1. insurmountable debt levels, 2. compounding at exorbitant interest rates, and 3. with no real ability to pay it back. The focus should be on what needs to be done to get rid of the debt and not so much on the credit score.

My response to the question of whether bankruptcy will hurt a credit score, is to ask another question or two: Did you come see me to get rid of your debt or to increase your credit score? What do you plan on doing with your credit score with all the debt you have? These questions begin to frame the discussion within the context it needs to be, for a person that is debt-burdened: What is the priority? The answer should be debt-relief.

The importance of one’s credit score has its place. For example, we know an individual’s credit score will have an impact on the cost of securing credit from a lender. The cost of credit or interest rate paid when borrowing money, determines how much is fully paid back by a borrower. When a consumer is in the market to buy a house or condominium or purchase a vehicle and needs to borrow money to make the purchase, the credit score will affect the amount of interest paid on the loan. Certainly, when borrowing money the credit score is important. But what about that person who is overburdened with debt, paying high interest rates on that debt, having difficulties paying it down, simply surviving to make minimum monthly payments? Should that person be concerned with their credit score or should they first be concerned with getting rid of the over burdensome debt, allowing them to then move forward with their financial future, debt-free, which will allow them to build up their credit score? When addressing how to get rid of excessive debt, the concern over the credit score is secondary.

Most people who buy a home or car, usually do not have excessive amounts of other debt, like credit card debt or medical bill debt. They usually have no other debt or very small amounts, allowing them to borrow money to buy the home or car. On the other hand, people who are over burdened with debt, generally do not have the ability to go to their neighborhood bank and borrow more money, getting deeper into debt. They are “tapped-out.” Even a high credit score, will usually not convince a lender to loan more money to an overburdened borrower. The credit score is essentially of no value to a person carrying high amounts of debt. They can’t borrow more money, they already are carrying too much debt. The credit score is not the issue; the debt is the issue. That’s the priority. That’s what matters.

Sometimes, people can carry high debt amounts and maintain a relatively high credit score, both at the same time. This can be the case when the borrower is current on monthly debt payments, only because they are making minimum payments each month on high interest rate debt. So, although the credit score may “look good on paper,” because they are current on payments, this borrower is overwhelmed with high debt levels, at high interest rates and is barely able to make a dent towards paying it off. In this situation, what good is the high credit score? Debt is not being paid off, they remain overburdened with debt and their credit score is not helping them pay-down the debt. In addition, most people with high debt levels and a good credit score are not thinking they want to take-on more debt. They are usually thinking: “how do I pay it off?” Again, debt is the issue, not keeping the high credit score.

Once we discuss a person’s financial situation and determine getting rid of debt is really the issue, people begin to understand focusing on a high credit score should not be the primary concern and a high credit score does very little to make their life better.

Once debt levels are relieved, people can then focus on building and maintaining a good credit score. With minimum or no debt, and a good credit score, a person can then go out and get a mortgage or car loan. Ultimately, the best way to build and maintain good credit is to buy a home or car and stay current on monthly payments. But, you can’t buy that home or car if you are already carrying too much debt; the credit score has little value.

So, to answer the question: won’t a bankruptcy hurt my credit score? The answer is: it depends. Sometimes a bankruptcy does initially reduce a person’s credit score; sometimes a bankruptcy will not have much effect on a credit score. Everyone’s situation is different. In most situations, people’s credit scores will be higher about eighteen months after bankruptcy. Paying post-bankruptcy bills on time will begin to rebuild credit. The best part is that after bankruptcy people are debt-free and able to move forward with their lives. Again, the focus is not the credit score; the focus is getting rid of the debt.

So, do you think getting rid of debt is more important than maintaining a high credit score? Would you be concerned with your credit score if you were overwhelmed by excess debt levels? Would you avoid seeking debt relief, continuing to remain burdened with excessive debt, making only minimum payments on that debt each month, only to maintain a credit score? Or would you first get rid of high debt and then focus on building and maintaining a good credit score? Let me know what you think.

If you are overwhelmed by debt and find yourself with no way to pay it back, call me to discuss your situation. Call to speak with an experienced bankruptcy attorney about your specific situation. We can help you rid yourself of excessive debt and then focus on how to build your credit score, without being overburdened by debt. There is a better way.

Together, we can make it better.

If too much time lapses from the time a homeowner stops making mortgage payments and to when the lender starts the foreclosure process, the foreclosure lawsuit will violate the statute of limitations. The homeowner can argue too much time has passed and it is too late for the lender to bring the foreclosure lawsuit and that the lawsuit is invalid and cannot proceed and should be dismissed. In those states that have “judicial” foreclosure laws, like Illinois, there is a time limit a lender has in which it can bring a foreclosure suit against the homeowner. That time limit to file a foreclosure lawsuit varies from state to state and can range from as little as three years to as much as fifteen years, in some states.

The lender’s foreclosure lawsuit is invalid and the lender is not entitled to foreclose if the lawsuit starts after the statute of limitations has expired. When a homeowner is claiming the lender’s foreclosure lawsuit was not filed in time, the homeowner is raising an affirmative defense to the lawsuit. The homeowner must raise the issue, with the court, that the foreclosure lawsuit was not filed in time. If the homeowner does not raise the issue with the court, then the defense is waived and the lender will continue with the foreclosure lawsuit.

When does the statute of limitations begin to run?

A major issue involving the statute of limitations in a mortgage foreclosure lawsuit is determining when the clock starts to run on the time limit to bring the lawsuit. Usually, the time limit begins from the date the “default” occurred. The default is generally when mortgage payments are stopped being made and is usually calculated from the date of the last payment or calculated from the date the last payment was due.

What if the statute of limitations runs while the lawsuit is pending?

It is not a defense to a foreclosure lawsuit if the statute of limitations runs out during the case. Even if it takes years for the foreclosure lawsuit to complete its course through the legal system, which is often the case when the homeowner hires an attorney who has the experience and knowledge to defend against the lawsuit, the statue of limitations is not a defense to the foreclosure, if the lawsuit was filed before the statute of limitations expired. The lender only needs to start the foreclosure lawsuit before the time limit expires.

What if the lender cancels or dismisses the foreclosure lawsuit?

Sometimes a lender will stop or dismiss the foreclosure lawsuit, which happens, for example, if the lender discovers a procedural error and then decides to re-file the case. In such circumstance, the homeowner may be able to raise the statute of limitations as a defense. The lender must re-file the dismissed foreclosure lawsuit within the time period provided by the statute of limitations; if the lawsuit is not timely re-filed, the lender cannot foreclose.

Many lenders continue to have a backlog of delinquent loans for which they have not filed foreclosure actions. If it has been years since the time a borrower stopped making payments and the lender initiates a foreclosure lawsuit, raising the statute of limitations may be a valid defense to the foreclosure action, because too much time has passed for the lender to file the lawsuit.

So, what are your thoughts on the statute of limitations? Do you think it is right for people to be able to avoid foreclosure and keep their home simply because their mortgage lenders waited too long to file a foreclosure lawsuit? Should lenders be given more time to file foreclosure lawsuits because of the high amount of delinquent mortgage loans they have on their books? How much time should lenders have to file for foreclosure?

If it has been some time since you have made your last mortgage payment and the lender has not filed a foreclosure suit, yet, the statute of limitations may be an issue in your case and a valid defense. Even if you currently have or had a mortgage foreclosure lawsuit filed against you, the statute of limitations may still be an issue in your case, if the lawsuit is dismissed or was dismissed and the lender attempts to or did re-file the lawsuit.

Call to speak with an experienced bankruptcy attorney about your specific situation. We can help you with your foreclosure situation, as well as, your debt issues and concerns. There is a better way.

Together, we can make it better.

An IRA, as most people know, is simply an account set up at a bank or other financial institution allowing a person with earned income to save for retirement with tax-free growth or on a tax-deferred basis. The IRA is a great way to save for future retirement.

But few people take advantage of the opportunity to contribute towards an IRA.

On the other hand, one-quarter of the 1,000 people polled by TIAA-CREF said a top savings priority is to contribute to their employer’s retirement plan, like a 401(k). Apparently, people knew more about an employer’s 401(k) plan rather than an IRA plan. It may be that it is easier for an employee to take a small portion of her pay, each pay period, and automatically contribute that small amount into an employer’s retirement plan throughout the year, rather than having to write a one-time check for a larger amount and deposit that check into an IRA account.

Whatever the reason, making contributions into both an IRA and a 401(k) can boost retirement savings. If you have to choose one or the other, it may be best to contribute to a 401(k) first, up to the employer’s match, before contributing into an IRA. But to ease the pain of contributing into an IRA, by avoiding having to write a lump-sum check for deposit into an IRA, setting up automated transfers, similar to how most 401(k) plans are established, from the account where your paycheck gets deposited, to your IRA, allows for smaller deposits into an IRA with each pay period.

Generally, setting up automated transfers from the account where your paycheck is deposited to retirement accounts, is an easier way to save. After all, if you don’t ever see the money, because it is going straight into a retirement account, means you are less likely to spend it.

How about you? Do you put money away for retirement? Do you use an employer retirement plan or an IRA or both? How do you save for retirement? Would you save extra cash towards retirement or spend it on something else?

Once you get rid of excess debt burdens and are not making monthly payments on high interest credit card debt, putting money away, little by little, becomes much easier and over a period of time, that savings can add up to a sizeable nest egg.

Consider opening an IRA if you do not have any retirement account. Even better, ask your employer if it offers a retirement plan and contribute towards the plan, a little at a time with each paycheck.

As time passes, your retirement savings will add up.

Together we can make it better.

The real issue is paying back the debt, after the purchase is made. If we take on more debt than our income can afford to pay back, it becomes overwhelming, leaving us stressed, anxious or even depressed, as we look for options on how to deal with the debt burden.

Over many years of representing clients saddled with excessive debt and counseling those overwhelmed by insurmountable debt burdens, I have found three common themes that, if understood before debt is taken out, most people can avoid being placed in a position of trying to figure out how the debt will be paid back.

THE FIRST RULE:
Do not borrow money that cannot be paid back by current income.

Seemingly simple enough to understand, yet people every day accept and commit themselves to debt when they don’t have the income to pay it back. For example, prior to the real estate collapse, and the mortgage crisis that followed, homebuyers committed themselves to years of monthly payments, with the hope their income would increase to allow them to pay the loan, with no real concrete plan to actually pay it back. Any unanticipated event in their lives and the mortgage was not paid.

THE SECOND RULE:
Do not use credit to purchase assets that don’t produce income or have any chance of going up in value.

Understanding this rule, one will appreciate that borrowing money to buy real estate, which over an extended period of time tends to increase in value and also acts as a vehicle for saving money by building equity, is a good use of debt, but using credit to buy a car or a new computer, items which drastically depreciate in value as soon as the buyer walks out the dealership or store, may not be the best use of debt.

THE THIRD RULE:
If you use a credit card, use it for convenience sake, to make purchases you can afford to pay when the bill is received the following month.

We all understand the convenience of having and using a credit card to buy goods and services. More often than not, a credit card may be the only way to pay for something. For example, an airline ticket or rental car usually can only be purchased by using a credit card as the means of payment. Credit cards are also a convenient payment method when making an online purchase. But the key is, to pay the bill when it is received the following month. Using a credit card for the convenience it provides in making a purchase, but not paying the bill when it is received the following month, quickly leads to a situation where the debt and the accumulated interest on top of the debt, becomes overwhelming, leading to a situation where current income cannot afford to pay off the debt.

There you have it. The 3 rules you need to know to effectively handle debt and avoid being placed in a position of not being able to pay it back.

Of course, sometimes truly unforeseen circumstances do arise, leaving you with the inability to pay back debt. An unexpected loss of a job or an injury leaving you unable to work and without income, are both instances that cannot be fully anticipated and can lead to manageable debt burdens quickly getting out of hand. In those circumstances, you have options.

Call to talk with an experienced bankruptcy attorney in Chicago. There is a better way.

What about you? Do you see credit as a form of money creation? Do you have any other suggestions or rules on how to effectively use debt? Is it possible to function in today’s society using the mentioned 3 rules of debt? How has debt overwhelmed you? Send a comment with your thoughts.

Together, we can make it better.

Apparently, since the economic downturn, many people who borrowed money to purchase high performance cars in Dubai, are unable to make payments on their car loans and abandon their cars at the airport, just before fleeing the country, all because they feared going to jail for not making their loan payments. In some countries, it is still a crime to not pay on debt and the punishment is time in jail. Believe it or not!

Thankfully, in our country, it’s not a crime to owe money and “debtors’ prisons were abolished in the United States in the earlier part of the 1800’s. So, the good news is your creditors cannot have you put in jail if you can’t pay your debt. But, your creditors can sue you to collect on the debt you don’t pay, unless you seek debt relief through bankruptcy protection to eliminate the debt.

When it comes to car loans, if you can’t make your car payments, bankruptcy law allows for the car loan debt to be eliminated, relieving you of the obligation to pay the balance due on the loan (of course, without going to jail). At the same time, if you are unable to keep making your monthly payments on your car loan or file for bankruptcy relief to eliminate the car loan debt, understandably you can’t keep the car and the creditor has the right to take possession of the car, but, any balance due on the car loan is eliminated, relieving you of the obligation to make further payments on the loan.

If you can’t continue making that car loan payment, there is no need to drive to O’Hare or Midway Airports, leave the car in the parking lot and jump on a plane to flee the country for fear of going to jail. Bankruptcy law gives you the legal right to eliminate the debt, without fear of going to jail and without future concern of creditor collection efforts and harassment. There is no need, like those people in Dubai who abandoned their cars and fled the country, to run from your debt.

So, what do you think about those people in Dubai who abandoned high performance cars? Would you abandon your car or other property because you couldn’t make the payments? Do you think bankruptcy and debt relief is a better option than running away from debt? Send a comment with your thoughts.

Call me if you have a car loan payment you cannot continue to make. Call if you are overwhelmed by debt and don’t’ know how to deal with it or find yourself unable to continue making payments on debt. Call to talk with an experienced bankruptcy attorney right here in Chicago. There is a better way.

Together, we can make it better.

My focus has been to help those who have been injured, due to someone else’s fault, or to help people who have difficulty dealing with debt. But it doesn’t end there; I have represented clients in various areas of the law. If you have any issue or concern, you may reach out to me and if I can’t help, I can probably refer you to someone who can help you. Over the years, I have established a wide network of lawyers and professionals and I probably know someone who will most likely be able to help. I would be pleased to introduce you to someone who can help you, if I can’t.

As we move forward, I will use this blog to bring interesting issues and topics to you and my take on them. My purpose will be to provide you with information in hopes of making your situation a little bit better.

So, I invite you to check into my blog to learn more. Also, feel free to call me to discuss your situation. Call me by my first name: “Dean,” and we can, together, see if we can find a solution to make it better, using the law.

For now, let me know what you think of the website. Do you like the layout? Is it easy to read? Send me a comment with your input.

Together, we can make it better.