50 cent files for bankruptcy! Wait, what does that mean anyway?

Tip: don't show up to your 341 meeting wearing all your gold chains.

As you all have heard by now, Curtis James Jackson III (aka 50 cent) has filed for bankruptcy protection.  Many of the articles I've read online make it seem like he's broke and living on the streets.  But 50 cent filed for Chapter 11 Bankruptcy, a type of bankruptcy most regular people don't know much about.  Very long story short, he can keep assets and continue making money, he just has to pay back creditors according to a bankruptcy plan and most importantly, creditors have to wait!  This article from complex.com sort of explains it: "50 Cent Filing for Bankruptcy Does Not Mean He's Broke".

For most regular folks your bankruptcy options are usually a Chapter 7 or Chapter 13.  Either you have no assets and low income and you get rid of your unsecured debt in a Chapter 7, or you might have some assets and a big higher income and you repay some of your debt in a Chapter 13.  Read more about your choices here.

And just for fun here is a list of famous people who have filed for bankruptcy:

• Abe Lincoln
• Thomas Jefferson
• Walt Disney
• Henry Ford
• Larry King
• Donald Trump
• Mark Twain
• Burt Reynolds
• M.C. Hammer
• Cindy Lauper
• Mike Tyson
• Toni Braxton

and many more.

For many people bankruptcy is a necessary step to reorganize their lives after a financial set back.

US Department of Education issues advisory letter on student loans and bankruptcy!

If you know anything about bankruptcy and student loans, you know that they do not work well together.  Student loans are not dischargeable in either a Chapter 7 or Chapter 13 Bankruptcy unless you file an adversary proceeding and can show that the loans present an undue hardship on the Debtor.  The test called the "Brunner Test" is very difficult to pass unless a Debtor has a severe illness and no prospect of ever repaying the debts again.

The US Department of Education issued a letter today providing guidance to lenders when dealing with student loan discharge claims.  The letter reiterates how only a Debtor in an extreme situation should be issued a discharge of their student loans in bankruptcy.  Although the letter does direct student loan lenders to follow a two-step analysis to determine whether they should object to an attempt at discharging student loans in a bankruptcy case, the result is essentially the same: Student loans are extremely difficult to discharge in bankruptcy.

The two-step analysis suggested by the US Department of Education is as follows:

1. First a loan holder must evaluate a borrower's undue hardship claim and determine whether the holder believes the repayment would constitute an undue hardship according to the legal standard set by the Federal Courts.  (Essentially the Brunner test).  If the loan holder determines that there would be an undue hardship, they can consent and not oppose the discharge.  (Although they could still object at this point).

If the loan holder believes there is no undue hardship they then move on to step 2.

2. The loan holder should then weigh the cost of objecting to the undue hardship claim in court, with consenting to the discharge.

Long story short, this letter provides an analysis of student loan debt dischargeability and provides some guidance to lenders on how to approach adversary proceedings, but the takeaway is the same: Student loans are VERY difficult to discharge in bankruptcy.

It is also important to note that an adversary proceeding is often times a lengthy and expensive proceeding, and many Debtor can not afford to hire their bankruptcy attorney to litigate these matters.

The entire letter issued by the US Department of Education can be found here.

IS BANKRUPTCY RIGHT FOR YOU?

Deciding if you should file for bankruptcy is a tough decision.  Most people who find themselves in debt qualify for at least one type of consumer bankruptcy.  If you have over $10,000 of debt and are unable to pay your bills or are dealing with a foreclosure, wage garnishment or lawsuit you may want to consider filing for bankruptcy.  

Chapter 7 Bankruptcy

When you file Chapter 7 bankruptcy you eliminate your unsecured debt such as credit cards and medical bills.  Most of the time you can keep your home and car.  In order to qualify for Chapter 7 bankruptcy you cannot have substantial assets or earn over the median income in your county.  

Chapter 7 bankruptcy will stop a wage garnishment and lawsuits against you. 

Some debt is not eliminated in Chapter 7 such as student loans, secured mortgage debt, child support and alimony, parking tickets and tax debt.  

Many people qualify for Chapter 7 bankruptcy and can eliminate most of their debt.   Chapter 7 attorney fees range from $1,000-2,000 depending on your case.  The court filing fee is $335.00.   

Chapter 13 Bankruptcy

When you file Chapter 13 bankruptcy you file a  bankruptcy plan that pays back some of your debt over a 3 to 5 year period.  Many times, people who might not qualify for Chapter 7 due to income or assets, can file a Chapter 13 case and have a manageable payment for the life of the plan. 

Chapter 13 bankruptcy can include parking tickets and lift a license suspension, can void a second mortgage lien, and can include tax debts owed to the IRS or state. 

To qualify for Chapter 13 bankruptcy you must have some form of regular income, such as a regular job, child support, or a pension or social security. 

Chapter 13 fees are set by the court in this jurisdiction and are $4,000.00 plus the court filing fee of $310.00.  However many times you can have your case filed with little or no money down, depending on your situation. 

Call us today for a free consultation and we will help you determine which type of bankruptcy is right for you.