Student Loans and Bankruptcy

By Kelley Snyder, Paralegal and Charice Holtsclaw, Managing Attorney

Currently, student loans (whether private or federal) are not dischargeable in bankruptcy. However, with that being said, you can attempt to discharge them in bankruptcy if you can prove that the payments are an undue hardship. This can be incredibly difficult to prove though because you have to show that you are physically unable to work and you will not be able to make money (essentially for the rest of your life). This action is a separate motion that is filed with the bankruptcy court called an adversary case.

Politicians are starting to realize that student loans are becoming a major problem and they are doing what they can to provide some assistance. On January 23, 2013 three senators reintroduced the “Fairness for Struggling Students Act of 2013” and the “Know Before You Owe Act of 2013” to try to help with the student loan epidemic (Orenbuch). The goal of these acts is to revise current bankruptcy rules to allow PRIVATE student loans to be discharged (Orenbuch). This particular bill has been introduced previously and failed to pass (Orenbuch).

Federal student loans are the main issue facing borrowers today. There are approximately $1 trillion in outstanding federal student loans in the United States currently (Orenbuch). These bills do not address federal loans, just private. However, there are numerous consumer groups that are currently pushing to make it easier to discharge federal student loans as well (Orenbuch).

Many opponents believe that if these bills pass it will make it difficult for borrowers to obtain loans. They believe that lenders will impose higher interest rates, making it even more expensive to get an education. Supporters of the bills believe that it will in fact give incentive to private student loan lenders to make good loans. Knowing that they could potentially be discharged could potentially deter them from making risky loans (Cohen).

Considering that the same bill has failed previously, it is hard to judge the likelihood of it passing this time around. But, it is definitely worth keeping an eye on if you are burdened by student loan debt, especially private loans.

In the meantime, your best recourse for dealing with your federal student loan debt is to work with your lender to see if you’re eligible for the Income Based Repayment option. More information on that can be found on the Department of Education’s website here: http://studentaid.ed.gov/repay-loans/understand/plans/income-based

Sources:

1. Orenbuch, Moshe, and Meredith Roscoe. “Student-Loan Bill Won’t Get an Easy Pass.” Barron’s. 6 March 2013. 
2. Cohen, Steve. “Allow Private Education Loan Debts to Be Erased in Bankruptcy.” US News & World Report. 6 March 2013. 

Common Law Marriage

The basic requirements of marriage are fairly straightforward: the parties must agree to marry, must be eligible to marry, and must go through whatever forms are required for marriage in that state where they intend to marry. Marriage is not, however, treated uniformly throughout the states. The formal requirements vary from state to state. In general, parties must secure a marriage license and participate in some form of a ceremony.

There are many people who have not participated in a valid ceremonial marriage but still live and share life together as though they had. Their relationship might instead be defined by an alternative doctrine. Common-law marriage is an example of one such alternative doctrine. It differs from ceremonial marriage in terms of the way in which it is entered into. While it lacks the same formalities (such as obtaining the marriage license), the other substantive limitations still apply. A formal divorce action is necessary to end a common-law marriage, just the same as a ceremonial marriage.

What are the basic elements of common law marriage?

To have a common-law marriage, the parties must first intend to be married. In addition, they must continuously cohabitate and hold themselves out as husband and wife. The “holding out” element entails the public’s perception of the couple, as well as establishing uniformity and consistency. There is essentially no such thing as a secret common-law marriage. “Holding out” might be evidenced by, among many other things: the intent and belief of the couple with respect to the relationship, opinions from members of the community as to how the community regards the couple, use of the same last name, designations on life insurance policies, wedding bands, how the parties refer to each other, and even how their bills are paid and mail is addressed.

It is important to remember, however, that not every state recognizes the doctrine of common-law marriage. According to the National Conference of State Legislatures, only nine states, including Kansas, recognize common-law marriage (along with another five that have “grandfathered” common-law marriage).

Does Missouri recognize common law marriage?

Missouri is not among the states that recognize the common-law marriage doctrine. Under Missouri Revised Statute § 451.040, “common-law marriages shall be null and void.” There is an exception for common-law marriages contracted before 1921.

In order to give full faith and credit to the laws of other states, Missouri will also recognize marriages that have been validly contracted in a different state, as long as the marriage comports with the other state’s requirements. Even if the other state recognizes the validity of a common-law marriage, however, Missouri may not recognize the marriage it if it is found to violate public policy.

What Happens to Property at Divorce?

The disposition of property can often be a contentious issue for parties seeking a legal separation or the dissolution of a marriage. As part of the dissolution process, each party will submit documents to the court that illustrate their respective incomes and expenses, as well as a statement of non-martial and marital assets and debts. During the proceeding, the court will then, pursuant to Mo. Rev. Stat. § 452.330, set aside each spouse’s own separate property and further divide the marital property and marital debts as it deems proper.

In general, any property owned by a spouse prior to the marriage remains that spouse’s sole and separate property. It is non-marital property. Marital property, on the other hand, is considered to be all of the property acquired by either spouse during the course of the marriage. But there are several exceptions. If a spouse receives property as a gift, or by means of inheritance, that property is not martial. Any property that is acquired in exchange for any property a spouse owned prior to the marriage is also not considered to be martial property. Property obtained after a decree of legal separation is excluded as well. Parties can further agree to exclude property by way of a valid written agreement.

Aside from the exceptions noted above, any property acquired during the marriage will be presumed to be martial property. Title alone is not enough to sway the presumption. Even if property is titled individually in one spouse’s name, it will be presumed to be martial. It is possible to overcome the presumption by showing that the property falls under one of the exceptions. In a similar vein, separate property that has been mixed, or commingled, with martial property does not necessarily become marital property.

When the court divides the marital property between parties in a dissolution or legal separation, it will take a number of relevant factors into consideration. The value of the non-marital property set aside to each spouse and the custodial arrangements made for any minor children are among such factors. The court will also weigh the desirability of awarding the family home to the party with custody of the children. In addition, the court will consider the economic circumstances of each spouse, the conduct of the parties during the marriage, and the contribution of each party in acquiring the marital property. The role of a spouse as a homemaker shall be taken into consideration when determining that spouse’s contribution.

Contributions by Kelly Thompson, Law Clerk

Tax Relief for Mortgage Debt

With all of the “fiscal cliff” talk recently, it’s hard to pinpoint exactly what came of it and if the tax revisions/extensions affect you. One benefit is a one year extension of the tax relief for people whose lenders forgave a portion of their mortgage debt (1). If the bill had not passed, mortgage debts forgiven in short sale, loan modification, or foreclosure would be considered taxable income. That means you could be responsible for paying taxes on an already difficult loss. For someone struggling with income loss and losing a home, the last thing they need is to be slapped with a large tax bill.

According to RealtyTrac.com, 1 in every 1,274 homes in Missouri received a foreclosure filing in November, 2012. In Kansas, that number was 1 in every 1,255 homes for November 2012(2). With numbers that high, it’s easy to see just how many people could have been affected had the bill not passed.

This bill now expires on January 1, 2014. Some government programs encouraging loan modifications and short sales expire on that date as well. Daren Blomquist, vice president of RealtyTrac believes that because there are so many foreclosure listings, there will be a couple of years of short sales to come. He believes that the bill will likely be extended again next year, but there is no guarantee(3).

Recent mortgage settlements have encouraged lenders to work with their customers that are behind. They are being pushed to allow customers to examine alternatives to foreclosure. And, extension of the tax relief bill makes it more appealing to customers as well. However, these options, including loan modification, deed in lieu of foreclosure, and short sale can be complicated, time consuming, and confusing. It’s best to speak to an experienced attorney and real estate agent to figure out which option best suits your situation after speaking to your lender to see what is available.

By
Charice Holtsclaw, Managing Attorney
and
Kelley Snyder, Paralegal



1 “Fiscal Cliff Pact Also Aided Troubled Homeowners” The Sacramento Bee. 5 January 2013. http://www.sacbee.com/2013/01/05/5093513/fiscal-cliff-pact-also-aided-troubled.html

2 “Fiscal cliff bill extends tax relief for struggling homeowners facing foreclosure.” OregonLive. 3 January 2013. http://www.oregonlive.com/front-porch/index.ssf/2013/01/fiscal_cliff_bill_extends_tax.html

3 RealtyTrac. http://www.realtytrac.com/trendcenter/ks-trend.html

Thinking Ahead: Attorney Fees

The beginning of a new year often represents the opportunity to start fresh. For many, this means committing to resolutions such as getting in shape or completing unfinished projects. For others, beginning anew involves other significant changes such as defending the dissolution of a marriage, seeking modification of child custody or support, bankruptcy and paternity actions.

On the tail end of the holiday season, the thought of paying any lump sum towards attorney fees can often seem overwhelming or simply not feasible. But with tax season just around the corner, the next few months provide the perfect opportunity to begin planning and saving. Consider using this year’s tax refund as a payment towards retaining an attorney to help you navigate your legal matters. If you are currently represented and owe outstanding fees, using your tax refund to pay the remaining balance is a simple way to get caught up.

In general the legal process can often be time-consuming and expensive. Once you have hired an attorney to represent you, there are several measures you can take to help minimize your own attorney fees.

• Identify and communicate your goals and expectations. It might be helpful to rank them according to what you feel the most strongly about. Discuss your goals and expectations with your attorney to avoid future misunderstandings. Be reasonable and realistic. Remember that resolving disputes amicably can not only set a positive tone moving forward, it can also spare you from a financially and emotionally draining courtroom battle. Recognize the importance of being agreeable and knowing when to settle. 
• Keep track of your questions and issues that you would like to discuss. Making a list will allow you to ask all of your questions at one time without forgetting anything. Contacting your attorney by email can often be a more cost-effective approach to communication. While you will still be billed for the time spent reviewing and responding to your email, the fees will generally be lower than those for phone calls during which it is easy to become sidetracked. Keep in mind that other members of the attorney’s staff with lower hourly rates, such as law clerks and paralegals, may be able to assist you with certain questions or concerns related to administrative matters such as billing. 
• When you speak to or meet with your attorney, take notes to help you remember what was discussed and any instructions your attorney may have given you. This will help eliminate confusion and unnecessary delay in the form of your attorney re-explaining matters to you or making repeated requests for information. Be prepared. Keep a calendar with important dates and deadlines. 
• Respond promptly and completely to your attorney’s requests. In addition to collecting the requested documents, keep them organized. This will allow your attorney to spend more time working with the information itself and less time trying to dig through an unorganized stack of papers. 
• Remaining calm will also allow you to listen and communicate more effectively. One key to remaining calm is managing your own stress and taking measures to protect your own well-being. Remember that the process can often be very emotional, especially when it comes to family law matters. It is not uncommon to experience anger, frustration, sadness, and depression. While your attorney will assist you through the legal process and protect your interests, he or she is not a licensed psychologist. Finding a therapist or a counselor to help you work through the emotional components will allow you to spend the time you have with your attorney more productively. 
• Finally, remember that your attorney can only estimate costs and fees at the outset of the representation. Recognize that circumstances often change and the budget might need to be readjusted throughout the process. 

Contributed by Kelly Thompson, Law Clerk

Managing Stress During the Holiday Season

While the holidays bring plenty of cheer and laughter, they also tend to bring a great deal of stress. Planning face-time with family, coordinating activities, and managing the financial aspect of the holiday season can often become overwhelming. The following suggestions from the Mayo Clinic aim to reduce holiday-related pressure and anxiety:

Stick to a budget. It might be helpful to decide in advance how much you are going to spend. The trick is to then stick to it. Remember that gifts and presents do not equate to happiness. Do not extend beyond your means. If you have a large family or are traveling, consider other gift-giving arrangements. Some alternatives include donating to a charity in someone’s name or exchanging homemade gifts.

Plan ahead to avoid becoming overwhelmed. Trying to visit all of the family in a single day can be exhausting. Spreading family visits over the course of several days will allow you to make the most of the time you do spend with relatives. If certain relatives drive you crazy, consider activities that minimize the amount of time you spend together, like a cup of coffee or a quick lunch. Establishing some organizational tools can also help minimize unnecessary stress. For example, generating lists can help keep you focused while shopping or planning meals and activities.

Be flexible and realistic. Striving for utter perfection can often lead to disappointment when things do not pan out as hoped. The ability to make adjustments along the way is essential. Do not be afraid to adopt new traditions that better suit your family’s needs. Remember that traditions can grow and change as your family does and not every year has to be exactly like the one before.

Maintain healthy habits. The holidays are full of temptation. Remember to keep everything in moderation. Overindulgence can often lead to feelings of guilt. Try to strike a balance between some indulgence and maintaining your regular habits and routines. Exercise regularly and make sure you get enough sleep. Engaging the family in physical activities together can help make those healthy routines seem a little more fun.

Be aware of your feelings. Holidays may not necessarily be happy and joyous, particularly for those who have lost a loved one. Take the time to acknowledge and work through your emotions. If you are feeling isolated, reach out by volunteering or get involved in community events. When dealing with pushy family members, do not be afraid to say no. At the same time, do not be afraid to ask for help when you are feeling swamped. Openness and honesty can prevent harboring frustration, anger, and resentment. Take some time for yourself and relax as well.

For divorced families, the holidays can often be particularly challenging. The American Psychological Association offers several key pieces of advice for the holiday season, beginning with the importance of setting aside differences and laying down the sword. Put the needs of your children first. Encourage your children to spend time with your former spouse and reassure them that you will be fine when they do. Do not put unnecessary pressure on your children. When visits are not possible, technology like Skype can help facilitate contact between family members during the holiday season.

Sources:

“Stress, depression and the holidays: Tips for coping,” Mayo Clinic, available at http://www.mayoclinic.com/health/stress/MH00030

Dr. Elaine Ducharme, “10 Tips for Managing Family Stress at Holidays,” American Psychological Association, available at http://www.yourmindyourbody.org/family-stress-during-the-holidays/

Contributed by: Kelly Thompson, Law Clerk

If It Sounds Too Good To Be True...

We’ve all seen or heard the commercials offering debt settlement to consumers. They are inundating our radios and televisions constantly. These schemes can be really appealing to someone deep in debt – especially with credit cards. They promise to settle all of your accounts and get you debt free quickly.

This just seems too good to be true, and with reason. According to the National Association of Consumer Bankruptcy Attorneys, government officials estimate that about one in ten debt settlement cases fail. The Better Business Bureau was quoted as saying that debt settlement schemes are an “inherently problematic business.” The New York City Department of Consumer Affairs went on to say that debt settlement is “the single greatest consumer fraud of the year (1).” When a debt settlement case fails, it can leave you even further in debt with additional late charges or over limit fees on top of what you already owed.

If you choose to take the risky debt settlement road, there are a few things to watch for:

• Do they encourage you to fall behind on your payments? 
• Are they a for-profit businesses instead of a non-profit corporation? 
• Do they charge high fees for their services? 
• Are they offering you debt settlement for pennies on the dollar? 
• Have they said that they can remove negative things from your credit report? 
• How is their rating with the Better Business Bureau and your Attorney General’s Office? 

Paying attention to these things can help keep you out of the debt settlement trap. It can help you differentiate a settlement company that is a scheme versus a legitimate company that may be able to help your finances (1).

Getting out of debt, no matter which method you choose, can take a lot of time, effort, and dedication. You can’t expect for a settlement company to get you out of debt quickly and save you tons of money. You need to do some research and consider all of your available options. Research the consumer information on the FTC’s website (ftc.org) (2). Talk to an attorney about Chapter 7 bankruptcy, or consider paying off the debt yourself using Chapter 13 bankruptcy or techniques like the snow ball method or by paying more than the minimum payment each month.

Sources:
“The Debt Settlement Trap: The #1 Threat Facing Deeply Indebted Americans.” National Association of Consumer Bankruptcy Attorneys Consumer Alert. October 2012. 30 October 2012. <http://www.nacba.org/Portals/0/Documents/NACBA%20Docs/NACBA%20debt%20settlement%20trap%20consumer%20alert.pdf>.

Federal Trade Commission. 30 October 2012. <http://www.ftc.gov/bcp/menus/consumer/credit/debt.shtm>.

Contributed by: Kelley Snyder, Paralegal