ColSandurz

Possible Ineffective Bankruptcy Counsel?

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Last year I had to file for Chapter 7 personal bankruptcy. Having never done this before, I retained a bankruptcy attorney that I assumed would be an expert in doing this. While the bankruptcy was discharged without any real difficulty, it seems as if the instructions and assistance he provided had some serious flaws in them, including:

- instructing me to include all accounts in my bankruptcy - I'm not sure if this was the correct thing to do, especially since now accounts that I had a $0 balance with and could have simply closed are showing on my credit reports as "included in bankruptcy" and possibly lowering my credit score

- telling me to include all of my student loans in the bankruptcy (despite that fact that I don't think these can very easily be discharged by bankruptcy) - he then appeared very unsure of whether they were really discharged or not, and even worse, by including them in the bankruptcy, it triggered clauses in some of the contracts that allowed them to be paid by the loan insurers and then full payment was expected from me to the loan insurers. While it's very possible this might have happened anyway, at the least I would expect him to alert me of this ahead of time* so I could prepare or see if there was any way to mitigate these issues (since now I'm dealing with collection agencies)

*And yes, I would expect that in today's day and age, a bankruptcy attorney would be aware of this caveat with respect to student loans - is that expecting too much?


Anyway, I'm just wondering if I have any recourse against the attorney, or can do anything to try and fix some of the above problems? Any help is greatly appreciated! Thanks.

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The attorney did not mislead you.  You cannot pick and choose which accounts to include in BK.  You are required to disclose all creditors even if they have a zero balance.  

 

As for the student loans those are a debt as well and even though they cannot be discharged you do have to list them as a debt.  Failing to do so could also throw off the debt to income ratio so that you did not qualify.  The responsibility to find out what clauses would be triggered if you did BK them is yours not the attorneys.  His job is to file the case and make sure it is done correctly for the BK court and to protect you from the creditors during the process and he did this.  You as a client are supposed to ask ALL the questions you need to in order to understand the process.  He cannot anticipate what you do or do not know if you don't speak up.

 

The one thing you can do with regards to the student loans is enter into a rehab program.  The program allows you to make payments for 9 months to a year and then erases all late payments and returns it to a pays as agreed status.  

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The attorney did not mislead you.  You cannot pick and choose which accounts to include in BK.  You are required to disclose all creditors even if they have a zero balance.  

 

As for the student loans those are a debt as well and even though they cannot be discharged you do have to list them as a debt.  Failing to do so could also throw off the debt to income ratio so that you did not qualify.  The responsibility to find out what clauses would be triggered if you did BK them is yours not the attorneys.  His job is to file the case and make sure it is done correctly for the BK court and to protect you from the creditors during the process and he did this.  You as a client are supposed to ask ALL the questions you need to in order to understand the process.  He cannot anticipate what you do or do not know if you don't speak up.

 

The one thing you can do with regards to the student loans is enter into a rehab program.  The program allows you to make payments for 9 months to a year and then erases all late payments and returns it to a pays as agreed status.  

 

But are accounts with a $0 balance actually creditors since I don't owe them anything?  I included them in the BK filing per my attorney, but now they show up on my credit reports as "included in bankruptcy" (IIB) despite me not having owed anything on them, and I'm concerned that the more items that show as IIB on my credit report means a lower credit score when some of them might not have needed to be included.  For instance, couldn't I have just closed any accounts with a $0 balance before filing BK and then they wouldn't show as IIB?

 

As far as the student loans go, while I agree I should be asking questions to understand the process (and I did), there was almost no way I could have anticipated this and therefore known to ask this question.  I knew that student loans wouldn't be discharged, and we talked about that, but I simply thought that I would just keep paying them through and after the BK and that would be that.  I would expect an attorney I hire to also provide advice and counsel throughout the process and to be familiar with "traps" such as these.  

 

Thanks for the suggestion regarding a rehab program with the student loans - but I'm not sure it's applicable.  Those student loans that remained as actual loans (i.e. didn't trigger a clause that required full payment) - I just kept paying and am current with them.  And the loan that did trigger this clause - well, now I'm in collections with a company representing the insurer and they want full payment upfront.  Unfortunately, I do not have that kind of money to pay them, and I keep telling them that and they don't like that answer.  At this point, they've threatened legal action against me, and I've told them there's nothing more I can do since I don't have the money to pay even 2/3 of the full amount to settle it.  It just would have been nice if my attorney might have been aware of this ahead of time and informed me so I could have tried to deal with it before filing (maybe by contacting the student loan provider to see if there was a way they would just keep this loan instead of letting the insurer pay it and come after me).

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But are accounts with a $0 balance actually creditors since I don't owe them anything?  I included them in the BK filing per my attorney, but now they show up on my credit reports as "included in bankruptcy" (IIB) despite me not having owed anything on them, and I'm concerned that the more items that show as IIB on my credit report means a lower credit score when some of them might not have needed to be included.  For instance, couldn't I have just closed any accounts with a $0 balance before filing BK and then they wouldn't show as IIB?

 

No.  You cannot pick and choose what creditors you report in a BK.  The BK over all itself is hurting your credit not each individual creditor reporting as IIB.

 

As far as the student loans go, while I agree I should be asking questions to understand the process (and I did), there was almost no way I could have anticipated this and therefore known to ask this question.  I knew that student loans wouldn't be discharged, and we talked about that, but I simply thought that I would just keep paying them through and after the BK and that would be that.  I would expect an attorney I hire to also provide advice and counsel throughout the process and to be familiar with "traps" such as these.  

 

Your attorney has NO way to predict whether or not the student loan underwriter will use the acceleration clause. 

 

Thanks for the suggestion regarding a rehab program with the student loans - but I'm not sure it's applicable.  Those student loans that remained as actual loans (i.e. didn't trigger a clause that required full payment) - I just kept paying and am current with them.  And the loan that did trigger this clause - well, now I'm in collections with a company representing the insurer and they want full payment upfront.  Unfortunately, I do not have that kind of money to pay them, and I keep telling them that and they don't like that answer.  At this point, they've threatened legal action against me, and I've told them there's nothing more I can do since I don't have the money to pay even 2/3 of the full amount to settle it.  It just would have been nice if my attorney might have been aware of this ahead of time and informed me so I could have tried to deal with it before filing (maybe by contacting the student loan provider to see if there was a way they would just keep this loan instead of letting the insurer pay it and come after me).

 

You might want to check with the attorney.  If the insurer is coming after you for a non-federally back guaranteed loan it may be a violation of the BK.  If the creditor is going to use the acceleration clause no amount of negotiating is going to convince them otherwise. For many, once the BK is even filed even if you don't include the account they activate that clause.  Your attorney cannot prevent that.  It is their contractual right to do so.

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You might want to check with the attorney.  If the insurer is coming after you for a non-federally back guaranteed loan it may be a violation of the BK. 

 

Can you provide some further information?  How would the insurer coming after me for a non-federally backed loan be possibly in violation of the BK?  Thanks!

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Federally backed student loans cannot be BK'd.  PRIVATE student loans can be.

 

THIS.  If the loan was private which it sounds like it was because federally backed loans do not have insurance then it can be BKd and the insurer coming after you for a loan IIB is a violation of the federal BK laws.

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THIS.  If the loan was private which it sounds like it was because federally backed loans do not have insurance then it can be BKd and the insurer coming after you for a loan IIB is a violation of the federal BK laws.

 

I was under the impression that all student loans couldn't be discharged through Chapter 7 unless you went through a lot of hoops and could demonstrate significant hardship.  

 

Prior to the BK I had a federal consolidation loan, a state loan, and two private loans (being serviced by the same company).  After the BK, I still have the federal loan and the state loan, and one of the private loans is still being serviced by that same company and I'm still making monthly payments on it, but the other private loan was apparently paid in full by the insurer of it, and then they sent a collections firm after me for the full amount.  

 

So am I to understand that the private loans are discharged through the Chapter 7 BK, or just IIB (is there a difference?)?  And either way, what would the recommendation be for me to do now?

 

Thanks!

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Private loans that are not guaranteed ARE dischargable.  I would be calling the BK attorney and/or the trustee and informing them that the insurer is coming after you in violation of the law.

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Private loans that are not guaranteed ARE dischargable.  I would be calling the BK attorney and/or the trustee and informing them that the insurer is coming after you in violation of the law.

 

Clydesmom - thanks for all the info.  Would you be able to provide some reference to bankruptcy law (or other documentation) that I could use when contacting the attorney or trustee?  I just want to make sure I have something to back up my argument when contacting them.  Thanks again.

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Wait a minute guys.

The BK Reform Act of 05 put private student loans on the same footing as federally backed student loans.

They are not discharged by filing bk unless, you file an adversary proceeding and, properly notice the lender so they can object to the discharge. Just like federally backed loans.

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Wait a minute guys.

The BK Reform Act of 05 put private student loans on the same footing as federally backed student loans.

They are not discharged by filing bk unless, you file an adversary proceeding and, properly notice the lender so they can object to the discharge. Just like federally backed loans.

 

So I guess that the private loans can't be discharged easily - which means that the collections agency is OK to come after me - still, it would have been nice if my attorney had bothered to inform me this could happen instead of being blindsided by it months after my BK.

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