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

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

Child Support and Children in College

In Missouri, a parent’s obligation to pay child support generally ends when the child turns eighteen years old. If the child is enrolled in college, however, the child support obligation may continue if certain conditions are met.

Under Mo. Rev. Stat. § 452.340(5), the child support obligation will continue if the child enrolls in an institution of vocational or higher education prior to the October that follows the child’s graduation from high school. An “institution of vocational education” encompasses any postsecondary schooling or training where the child attends classes on a regular basis for a fee or tuition. An “institution of higher education” includes colleges, community colleges, or universities.

For the support obligation to continue, the child must be enrolled in and complete twelve credit hours each semester. Summer semesters are excluded. If the child withdraws from a course, the credit hours for that course will not count as part of the twelve required hours.

By statute, the child must provide a transcript to each parent at the start of each semester. The transcript, or other official document issued by the institution, must indicate the courses the child has enrolled in and completed for each term. The document must also show the grades and the number of credits the child received for each course. In addition, it must reflect the courses and corresponding credit hours the child has enrolled in for the upcoming semester.

In addition to enrolling in the required number of credit hours, the child must also receive grades that allow the child to remain enrolled at the institution. Failing grades in half or more than half of the child’s courses for any given semester may terminate the payment of child support.

The child is also responsible for providing the noncustodial parent, upon request, with a copy of his or her grades. Such documentation must be provided within thirty days of receipt of grades from the institution. Child support payments may terminate if the child fails to produce the documents in the allotted time.

If circumstances prevent the child from enrolling in twelve credit hours a semester, the requirement may be lessened. A minimum of nine credit hours each semester is required if the child remains employed for fifteen or more hours a week during the course of the semester. A child with a diagnosed developmental disability or health problem that impacts the number of credit hours the child can carry will remain eligible for child support as long as he or she meets all of the other requirements.

Provided the above requirements are met, a parent’s child support obligation shall continue until the child completes his or her education or turns twenty-one years old, whichever happens first. During this time, either the obligated parent or the child can petition the court to amend the order and instruct the obligated parent to make the child support payments directly to the child.


Contributions by Kelly Thompson, Law Clerk

What effect does bankruptcy have on your credit score?

First of all, you should know that bankruptcy can remain on your credit report for up to ten years. Other bad debts are removed after seven, but not bankruptcy. The impact that a bankruptcy filing has on your credit really depends on your credit report and score before filing. Many times people considering bankruptcy already have negative collections or bad debts on their report. So, they may already have a low credit score. Bankruptcy may not affect their credit scores as negatively as someone with a higher score. If you have a fairly high score and little bad debt listed, your score will probably take a quite a hit after filing your case.

How quickly your score improves after filing depends on you. After filing you will probably start to see lots of credit offers in the mail. Many financial advisors and bankruptcy attorneys suggest obtaining a low limit, secured credit card after filing. Use it on small purchases (like gasoline) and pay it off each month. And be sure to make all of your payments on time. This will slowly start to rebuild your credit. You can also look into obtaining a small line of credit from your bank or credit union. For some, the thought of obtaining new debt after filing for bankruptcy may be a scary thing. But, it’s a surefire way to slowly start rebuilding your credit.

You also want to ensure that your credit report is accurate after filing for bankruptcy. You can pull your credit report for free once a year at www.annualcreditreport.com. Pull your credit report and check that all of the debt that was included in your filing is reflected that way on your report. If something is incorrect, contact each of the three credit bureaus and get it corrected right away. You will need to send each of the bureaus copies of your notice of case filing, discharge notice, and schedules from your filed petition showing the debts that were included.

Rebuilding your credit after filing for bankruptcy can be a long process. But you just have to keep in mind that it is achievable. You didn’t get into financial trouble over night, so you can’t expect to dig out of it that quickly. It will take some time, patience, and hard work on your part. The bankruptcy gave you the fresh start that you needed. Now you just have to be willing to put in the work to get you back in a good financial position.

Blog Contributed By: Kelly Snyder

Child Orders of Protection: A Brief Overview

Orders of protection are available to children as well as adults. In Missouri, child orders of protection are governed by the Missouri Revised Statutes §§ 455.500 - 455.538. These statutory sections are known as the Child Protection Orders Act.

When is a child order of protection available?
An order of protection may be sought on behalf of a child in situations where the child has been a victim of domestic violence by a former or current household member or any person stalking the child. Domestic violence itself is broadly defined by statute as abuse or stalking. Abuse generally encompasses, but is not limited to, assault, battery, coercion, harassment, sexual assault, and unlawful imprisonment. Child discipline, such as spanking, does not constitute abuse as long as it is performed in a reasonable manner. Stalking occurs when a person intentionally engages in a pattern of conduct that serves no legitimate purpose, causes fear of physical harm, and is repeated over time.

Who can file?
A verified petition for a child order of protection may be filed by a parent or guardian of the child, the juvenile officer, or guardian ad litem or court-appointed special advocate that has been appointed for the child.

The petition may be filed in the county where the child resides, where the respondent may be served, or where the alleged abuse took place. Orders of protection are designed for immediate access and are generally pro se friendly. Court clerks are available to explain the filing procedures and provide the necessary forms to petitioners who are not represented by counsel. There are no filing fees for child orders of protection.

What happens next?
Once a verified petition has been filed, a guardian ad litem or court-appointed special advocate will be appointed for the child. A hearing will be set for no later than fifteen days after the filing of the petition. To provide relief for the time that elapses prior to the hearing, the court may issue an ex parte order.

Ex Parte Orders
Ex parte orders essentially provide temporary relief. Upon the filing of a verified petition, an ex parte will only be issued upon a finding that there are no prior or pending orders of custody, and that the respondent is not younger than seventeen years old. If the petition shows good cause, the court can immediately issue an ex parte order of protection. Good cause may be shown by an immediate and present danger of abuse to the child. A respondent does not need to receive notice or have an opportunity to be heard for an ex parte order to be issued.

Intended to protect the child victim, ex parte orders can include terms that the court deems necessary to ensure the child’s safety. An order can restrain the respondent from disturbing the peace of the child, communicating with the child, and abusing or threatening the child. An order can also exclude the respondent the family home or household if the court finds that it is in the best interest of the children remaining in the home, that there is a substantial risk of domestic violence unless the respondent is excluded, and that a remaining adult household member is able to care for the children in the respondent’s absence. An ex parte order can also include a temporary custody order.

An ex parte order remains in effect until the time of the hearing. At the hearing, the court may grant a full order or protection.

Full Orders of Protection
Unlike ex parte orders, full orders of protection are issued after the respondent has received notice of the hearing and had an opportunity to be heard. Personal service upon the respondent is required at least three days before the hearing for the issuance of a full order of protection.

At the hearing, a full order may be granted by the court if the petitioner proves the allegations by a preponderance of the evidence. Full orders of protection can temporarily enjoin the respondent from engaging in same actions and manners as ex parte orders. Upon issuing a full order of protection, the court can also award custody, visitation, child support, and maintenance, all subject to certain conditions. In addition, the court can order the respondent to participate in counseling, pay the cost of any treatment, make rent or mortgage payments, or pay fees for housing and other services that are provided to the child by a shelter for domestic violence victims.

Full orders of protection remain in effect for at least 180 days, but not for longer than one year. The order may be renewed upon another hearing. A finding of a subsequent or new act of abuse toward the child is not necessary for the renewal of a protection order.

For more information on this matter, contact the Kansas City Attorneys of Heartland Law.

Paternity Suits

A paternity suit is a lawsuit, usually by the mother of a child, to establish the legal relationship between a child and his/her biological father under Missouri’s version of the Uniform Parentage Act.

There are three parts to a paternity action:

1. A judicial declaration of paternity and ordering father’s name to be added to the birth certificate, 
2. A child support order, 
3. A plan for custody and visitation referred to as a parenting plan. 

Evidence of paternity can be from various sources including

1. A DNA test, 
2. A signed Affidavit of Paternity at the hospital at the time of the birth, 
3. aEvidence that the child was presented as ones’ child, including bringing the child home to raise. 

The parenting plan for the child addresses whether custody will be sole custody or joint custody and provides a schedule for visits. The Missouri legislature has expressed a preference for joint custody and takes the position that a continuing relationship with both parents is the ideal for a child’s healthy development. The parenting plan will provide for decision making as to the child’s education, medical care and religious upbringing. Child support is determined based on a calculation that takes the parents’ income and expenses into account. One of the parent’s addresses is designate the child’s permanent address for residential and educational purposes.

The parenting plan becomes a permanent part of the final judgment, providing the legal structure of the family of the child in the absence of a marriage, as well as protection in the event of interference with custody.

Digging Deeper Into Debt With Payday Loans

Regularly advertised as an easy source of money, payday loans appeal to people with an urgent need. Bankruptcy and payday loans tend to go hand-in-hand because once you fall behind it can be virtually impossible to catch up.

The payday loan industry claims that these loans are meant to be a small, short term advance used to help a borrower meet their financial needs until their next pay day. The lender holds a check anywhere from a week to a month and in return, the borrower gets cash immediately. These loans unfortunately have extraordinarily high interest rates that more often than not leave a borrower worse off than before. At the time, borrowing this money seems like an appropriate option in an urgent situation, but what the borrower may not realize is that they are only digging themselves deeper into debt.

Lenders say that these loans are used only in emergency situations and over a short term period -- however this is absolutely wrong. A Wall Street analyst conducted a study and found that "the average customer makes 11 transactions a year, which shows that once people take [out a payday loan], they put themselves behind for quite some time(1)." Borrowing from paycheck to paycheck will only result in eventually defaulting on repayment.

In one situation a woman named Andrea Felts took out a loan to help cover expenses after her divorce. She took out a $400 loan and was charged $120 in interest for the 16 day loan period. When she wasn't able to pay the $520 she borrowed, she rolled over the loan for an additional $120 in fees. By the end she rolled her loan over a total of 5 times which resulted in $600 in fees on a $400 payday loan(2).

Once you are already struggling to make ends meet, taking out a payday loan can escalate an already dire situation very quickly and it's all too common for a borrower to eventually file for bankruptcy. For the most part, payday loans are considered unsecured debt and are treated as so during bankruptcy proceedings. Filing for Chapter 7 will allow a debtor to discharge their debt without repayment and essentially all unsecured debt is dischargeable. Under Chapter 13, the payday loan is treated equally along with all other unsecured debt in the debtor’s plan. .

If the loan was received within 60 to 90 days before filing, the loan may not be dischargeable in bankruptcy. The creditor will have the presumption they were taken out with no intention of being paid back. Also, if the electronic authorization or check written to the payday loan company “bounces” or is returned by the bank as insufficient funds, the payday loan company may refer the incident to the County prosecutor for bad check charges. If you are charged with writing a bad check, this is a criminal charge that is not dischargeable in bankruptcy.

If you find yourself submerged with debt and your payday loans are only aggravating the situation, contact one of our knowledgeable bankruptcy attorneys for more detailed information.

Footnotes:

(1) M. Anderson, "Cash poor, choice rich, Paycheck-advance firms move in," Sacramento Business Journal (Jan. 11, 1999).

(2) "Payday Lenders: small loans, hefty fees, big problem." Consumer Reports Magazine. 02 2009: n. page. Web. 28 Jun. 2012. <http://www.docstoc.com/docs/23437676/Consumer-Reports-Magazine-February-2009-Payday-lenders-small>.

Custody of Minor Children—What is “Best Interest?”

To make an initial custody decision, a Missouri court has the duty to examine eight various factors in order to make a best interest determination. Where the child wishes to reside is one of them, but not necessarily the determining factor. The court must also look at:

The wishes of the child's parents as to custody and the proposed parenting plan submitted by both parties;

If one of the parents fails to participate in a cause of action, his or her ability to present a case is adversely affected. There are occasions when custody is determined in favor of the party who has filed, primarily due to the second party failing to file an answer and participate in the outcome. 

The needs of the child for a frequent, continuing and meaningful relationship with both parents and the ability and willingness of parents to actively perform their functions as mother and father for the needs of the child;

The Missouri legislature has expressed a clear preference for joint custody if possible. It is accepted as true that a child needs both a mother and a father for optimal maturation. However, if one parent is hampered by addictions, absence, abusive behaviors or illness, the other parent could be found to be a more able and willing parent. 

The interaction and interrelationship of the child with parents, siblings, and any other person who may significantly affect the child's best interests;

How does everybody interact and deal with one another? If there are significant issues, the court will consider those.

Which parent is more likely to allow the child frequent, continuing and meaningful contact with the other parent;

Action by a parent that interferes with the ability of the other parent to have a relationship with the child will adversely impact their custody. Examples are refusing to call the child to the phone, refusing to keep each other advised as to significant events, refusing to schedule parenting time with the other parent.

The child's adjustment to the child's home, school, and community;

If a child is having significant adjustment challenges in a particular home, school or community, a more nurturing environment might be indicated. Issues with step-parents, inappropriate discipline, cult membership, lack of educational opportunity, etc. will be considered. One parent being more financially able than another will not be determinative by itself.

The mental and physical health of all individuals involved, including any history of abuse of any individuals involved. If the court finds that a pattern of domestic violence as defined in section 455.010 has occurred, and, if the court also finds that awarding custody to the abusive parent is in the best interest of the child, then the court shall enter written findings of fact and conclusions of law. Custody and visitation rights shall be ordered in a manner that best protects the child and any other child or children for whom the parent has custodial or visitation rights, and the parent or other family or household member who is the victim of domestic violence from any further harm;

If a court finds there has been abuse but there is little alternative but to maintain custody with the abusive parent, special findings of fact must be made and written into the final judgment.

The intention of either parent to relocate the principal residence of the child; and

Once the case has been filed, it is against the law for a parent to unilaterally move the child out of the jurisdiction. All such moves will have to be approved by the court in order to be legal.

The wishes of a child as to the child's custodian. The fact that a parent sends his or her child or children to a home school, as defined in section 167.031, shall not be the sole factor that a court considers in determining custody of such child or children.

When children reach the teenage years, they often suddenly express a desire to switch households. Cases require careful analysis, as the Disney parent might seem attractive in the eyes of the minor child.

Once the court has looked at all these factors, the best interest of the child can be determined.

Custody of Minor Children—What is “Custody”?

"Custody" means joint legal custody, sole legal custody, joint physical custody or sole physical custody or any combination thereof;

"Joint legal custody" means that the parents share the decision-making rights, responsibilities, and authority relating to the health, education and welfare of the child, and, unless allocated, apportioned, or decreed, the parents shall confer with one another in the exercise of decision-making rights, responsibilities, and authority;

"Joint physical custody" means an order awarding each of the parents significant, but not necessarily equal, periods of time during which a child resides with or is under the care and supervision of each of the parents. Joint physical custody shall be shared by the parents in such a way as to assure the child of frequent, continuing and meaningful contact with both parents;

"Third-party custody" means a third party, such as a grandparent or guardian is designated as a legal and physical custodian.

Step Parent Adoption

When a step parent by marriage seeks to legally adopt the child or children of his/her spouse, it is commonly referred to as a “step parent adoption.”

In Missouri, the step-parent and the legal/biological parent may jointly petition the local Family Court for an Order of Adoption. The second biological/legal parent, if living, could execute a verified Consent to Adoption. The Consent to Adoption will be filed along with the Petition and if accepted by the Court, will terminate that parents’ rights to and over the child and end any legal support or other obligations as well.

When the parties petition jointly the Court may waive the home study.

If the second parent cannot be located, the Petition might include language to establish neglect and abandonment of the child, which if proved, could be the basis to terminate that parents’ rights to and over the child. (However, should the second parent oppose the adoption, the adoption will likely be impossible.)

Adopting creates legal rights and obligations to the child. The child will become a legal heir, and the adoptive parent will have obligations to provide financial and emotional support to the child. One adoptive father says, “He was already mine. It was just a matter of paper work.”

For more information on the process contact your Attorney Charice Holtsclaw at Heartland Law at 816-842-6700. Your first consultation is always free.

Bankruptcy Myth: I Can't File at All

While the bankruptcy reform of 2005 did change a lot of things about bankruptcy, but it did not eliminate your ability to file bankruptcy at all. There are now income guidelines, known as the "median income" and if your household falls above the median income, you still may qualify for Chapter 7 bankruptcy.

Your attorney will use the "means test" to calculate your income minus allowable expenses, to determine whether by IRS standards you have disposable monthly income each month. If you do not, you pass the means test and can file Chapter 7. If you do not pass, you still have the option of filing a Chapter 13 bankruptcy to repay a portion of your debt (anywhere from 1%-100% repayment based on how much disposable income you have). Get the facts before ruling it out - go ahead and schedule that first consultation with your bankruptcy lawyer and see where you stand.

Contact us anytime to set up a consultation in Kansas City, MO; Gladstone, MO; Liberty, MO;  Platte city, MO;  Riverside, MO; Independence, MO; Kansas City, KS; Overland Park, KS; Leawood, KS;  Shawnee, KS;  Shawnee Mission, KS; and Leavenworth, KS.

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Reaffirmations - Secured Debt

- Written by Lindsey Gardner, Law Clerk, Heartland Bankruptcy

A secured debt consists of debt backed by collateral, for instance a home mortgage is backed by the home itself and a car payment is backed by the car. Debtors may choose to keep their secured property by use of a redemption or a reaffirmation agreement. Redemptions allow debtors to redeem the property by purchasing it from the creditor with a lump sum payment. Reaffirmations allow debtors to ‘redo’ the agreement with the creditor. The Federal Bankruptcy “Code permits reaffirmations of unsecured as well as secured debt.” In Re Kinion, 207 F.3d 751 (5th Cir. 2000).

The new agreement can have the same terms as the old one or set forth a new amount owed and terms of repayment, allowing possibly for better terms to be negotiated. As long as the terms of the new agreement are kept current, the debtor can keep the property. This is especially helpful when the property being reaffirmed is an essential item, such as a car as the only means of transportation. Under reaffirmation agreements the creditor must include certain disclosures about the reaffirmation. 11 U.S.C § 524(c).

As long as an attorney represents the debtor and the debtor's budget shows they can afford the payments, upon signing the agreement it becomes effective immediately. If the debtor is not represented by an attorney, he/she must file the agreement with the court, appear at a court hearing, and get the approval of the bankruptcy judge. Nothing in the Bankruptcy Code stops the debtor from voluntarily repaying any debt; however case law suggests that not reaffirming on property such as a vehicle may be grounds for repossession in some states, including Missouri. In addition, if the debtor reaffirms the debt and subsequently defaults on the payments, the debtor then becomes responsible for the debt as though he/she never filed bankruptcy. Be sure to read all agreements carefully and that the debtor can afford to make any payments agreed to.

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Take a look through our menu of services. If you don't see what you're looking for, get in touch with us to discuss other services we provide. And as always, your first consultation is free.