Posts Tagged ‘Bankruptcy’

Student debt may be dischargeable in bankrupcy

July 22, 2021

‘The Trillion-Dollar Lie by Matt Taibbi for TK News.  “Universities built palaces and financiers made fortunes in part through a lie: that student loans can’t be discharged in bankruptcy.  But a series of court cases is helping unravel the scam.”

For years, it was believed that .. [the Bankruptcy Act of 2005] absolutely closed the door on bankruptcy for whole classes of borrowers, and one in particular: students.  Nearly fifteen years after the bill’s passage, journalists were still using language like, “The bill made it completely impossible to discharge student loan debt.”

Even I did this, writing multiple features about student loans stressing their absolute non-dischargeability, which is one of the reasons to write this now — I got this one wrong.

In 2017, I interviewed a 68 year-old named Veronica Martish who filed for personal bankruptcy — as I put it, “not to get free of student loans, of course, since bankruptcy protection isn’t available for students” — and described her being chased by collectors to her deathbed. “By the time I die, I will probably pay over $200,000 toward an $8,000 loan,” she said. “They chase you until you’re old, like me. They never stop. Ever.”

In fact, the bankruptcy situation was murky.  Beginning in the 2010s, judges all over the U.S. began handing down decisions …. that revealed lenders had essentially tricked the public into not asking basic questions, like: What is a “student loan”?  Is it anything a lender calls a student loan?  Is a school anything a lender calls a school?  Is a student anyone who takes a class?  Can lenders loan as much as they want, or can they only lend as much as school actually costs?  And so on.

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Puerto Rico also has a debt crisis

June 30, 2015

Puerto Rico’s governor on Monday called for the commonwealth to be allowed to restructure its debts under U.S. bankruptcy code, while a newly appointed adviser to the U.S. territory said it is “insolvent” and will soon run out of cash.

Governor Alejandro Garcia Padilla, in a televised address, said sacrifice must be shared by bondholders, as he called for Washington to allow a bankruptcy debt restructuring.

via Reuters.

I think Gov. Garcia Padilla is right.  If a debtor is unable to pay, this is the result of bad judgment or bad luck on the part of both the borrower and the lender.  They should share the consequences.

There may come a time when this argument has to be made on behalf of the United States as a whole.

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Why the middle class isn’t making it.

April 19, 2010

This article shows why a middle class income can no longer sustain a middle class standard of living. It originally appeared on the Zero Hedge web log, and was forwarded to me by my friend Daniel Brandt.

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IT’S IMPOSSIBLE TO ‘GET BY’ IN THE UNITED STATES

Submitted by Graham Summers of Phoenix Capital Research

While the market cheers on the fantastic job “growth” of March
2010, the more astute of us are concerned with a growing tide of
personal bankruptcies. March 2010 saw 158,000 bankruptcy filings.
David Rosenberg of Gluskin-Sheff notes that this is an astounding
6,900 filings per day.

This latest filing is up 19% from March 2009’s number which
occurred at the absolute nadir of the economic decline, when
everyone thought the world was ending. It’s also up 35% from last
month’s (February 2010) number.

Given the significance of this, I thought today we’d spend some
time delving into numbers for the “median” American’s experience in
the US today. Regrettably, much of the data is not up to date so
we’ve got to go by 2008 numbers.

In 2008, the median US household income was $50,300. Assuming that
the person filing is the “head of household” and has two children
(dependents), this means a 1040 tax bill of $4,100, which leaves
about $45K in income after taxes (we’re not bothering with state
taxes). I realize this is a simplistic calculation, but it’s a
decent proxy for income in the US in 2008.

Now, $45K in income spread out over 26 pay periods (every two
weeks), means a bi-weekly paycheck of $1,730 and monthly income of
$3,460. This is the money “Joe America” and his family to live off
of in 2008.

Now, in 2008, the median home value was roughly $225K. Assuming our
“median” household put down 20% on their home (unlikely, but it
used to be considered the norm), this means a $180K mortgage. Using
a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008
monthly mortgage payments were roughly $1,022.

So, right off the bat, Joe’s monthly income is cut to $2,438.

According to the US Department of Agriculture, the average 2008
monthly food bill for a family of four ranged from $512-$986
depending on how “liberal” you are with your purchases. For
simplicity’s sake we’ll take the mid-point of this range ($750) as
a monthly food bill.

This brings Joe’s monthly income to $1,688.

Now, Joe needs light, energy, heat, and air conditioning to run his
home. According to the Energy Information Administration, the
average US household used about 920 kilowatt-hours per month in
2008. At a national average price of 11 cents per kilowatt-hour
this comes to a monthly electrical bill of $101.20.

Joe’s now down to $1,587.
Now Joe needs to drive to work to make a living. Similarly, he
needs to be able to drive to the grocery store, doctor, etc.
According to AAA, the average cost per mile of driving a minivan
(Joe’s a family man) in 2008 was 57 cents per mile. This cost is
based on average fuel consumption, tires, maintenance, insurance,
license and registration, and average loan finance charges.

Multiply this cost by 15,000 miles per year and you’ve got an
annual driving bill of $8,550. Divide this into months (by 12) and
you’ve got a monthly driving bill of $712.

Joe’s now down to $877 (I’m also assuming Joe’s family only has ONE
car). Indeed, if Joe’s family has two cars (one minivan and one
sedan) he’s already run out of money for the month.

Now, assuming Joe’s family is one of the lucky ones (depending on
your perspective) they’ve got medical insurance. Trying to find an
average monthly medical insurance premium for a family in the US is
extremely difficult because insurance plans have a wide range in
deductibles, premiums, and co-pays. But according to eHealth
Insurance, the average monthly premium for family policies in
February 2008 was $369.

So if Joe has medical insurance on his family, he’s now down to
$508. Throw in cell phone bills, cable TV and Internet bills, and
the like, and he’s maybe got $100-200 discretionary income left at
the end of the month.

This analysis covers all of the basic necessities of the average
American household: mortgage payments, food, energy, gas, driving
expenses, and medical insurance. It also assumes that Joe:

1) Didn’t overpay for his house

2) Made a 20% down-payment of $45K on his home purchase

3) Has no debt aside from his mortgage (so no credit card debt,
student loans, etc)

4) Only has one car in the family and drives 15,000 miles per year

5) Keeps his energy bill reasonable

6) Does not eat out at restaurants ever/ keeps food expenses
moderate

7) Has no pets

8 ) Pays for health insurance but has no monthly medical expenses
(unlikely with two kids)

9) Keeps his personal budget under control regarding cable TV, Internet,
and the like

10) Doesn’t spoil his kids with toys, gadgets, trips to the movies, etc.

11) Doesn’t take vacations.

Suffice to say, I am assuming Joe maintains EXTREMELY conservative
spending habits. Personally, I know NO ONE who meets all of the
above criteria. However, even if the above assumptions applied to
the average American, you’re still only looking at $100-200 in
“wiggle” room for spending per month!

If Joe:

1) Overpaid on his house

2) Didn’t have a full 20% down payment

3) Owns two cars

4) Eats at restaurants

5) Splurges on heating & A/C bills

6) Has any medical expenses aside from monthly premiums

— he is running into the red EVERY month.

I also wish to note that my analysis didn’t include real estate
taxes and numerous other expenses that most folks have to pay. So
even if you are extremely frugal and careful with your money, it is
impossible to “get by” in the US without using credit cards, home
equity lines of credit or burning through savings. The cost of
living is simply TOO high relative to incomes.

This is why there simply cannot be a sustainable recovery in the US
economy. Because we outsourced our jobs, incomes fell. Because
incomes fell and savers were punished (thanks to abysmal returns on
savings rates) we pulled future demand forward by splurging on
credit. Because we splurged on credit, prices in every asset under
the sun rose in value. Because prices rose while incomes fell, we
had to use more credit to cover our costs, which in turn meant
taking on more debt (a net drag on incomes).

And on and on.

Does this mean the market is about to tank? Not necessarily, stocks
have been disconnected from reality since November if not July.
Bubbles (and we ARE in a bubble) take time to pop and this time
around will be no different.

Best Regards,

Graham Summers

END

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