Subprime Lending Contributes to Widespread Cleveland Foreclosures

Cleveland has officially joined the growing list of Midwestern cities that have seen a severe increase in foreclosure filings over the last year, and there’s no sign of this dubious trend stopping anytime soon. While subprime mortgage defaults have recently rocked Wall Street and damaged our national economy, the effects of these shady lending practices are being felt by families nationwide, especially so in the Midwest. Michigan and Ohio alone accounted for a combined 15% of the nation’s foreclosures in January, 2007.

Cleveland is in a similar situation to Detroit and other blue-collar working towns in the Midwest experiencing this unfortunate foreclosures spike. Many factors are deemed responsible for the problem – a poor economy, predatory lending tactics, weak consumer protection laws, shady lenders trying to exploit the loosely regulated subprime market for their personal gain, and financially unqualified people obtaining home loans.

The problem however isn’t confined to just the metropolitan areas either, it’s a true statewide problem for Ohio, Michigan and other Midwestern states.

While the SEC (Securities and Exchange Commission) has recently publicly announced that it is investigating a number of companies that operate in the troubled market for subprime mortgage loans, this won’t unfortunately assist or help the families who have fallen or hard times are facing losing their homes in the near future.

Based on household income and an ability to repay, Chapter 13 Bankruptcy is the most effective way to stop foreclosure proceedings. Chapter 13 forces your mortgage company to accept repayment of mortgage arrears over a three to five year period and allows people to stay in their homes. If you or someone you know is involved or will soon be involved in a foreclosure lawsuit, an experienced bankruptcy attorney may be able to help.

2006 Fiscal Year Bankruptcy Statistics Released recently released bankruptcy filing statistics for the 2006 fiscal year. (October 1, 2005 – September 30, 2006) The total number of bankruptcy filings for the 2006 fiscal year (1,112,542) was the lowest amount since 1996. Chapter 7 bankruptcies accounted for 75 percent of all petitions filed in the 2006 fiscal year.

The numbers for this time period are deceptive, because over 50% of all bankruptcies filed during this period were filed in the first 16 days of the fiscal period. This is a result of a rush to file cases before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA) that went into effect October 17th, 2005.

The drop-off in filings after the law change was largely expected by the bankruptcy legal community, but many bankruptcy attorneys did not expect the decrease in filings to last for so long. As the public becomes more educated about the new bankruptcy laws, I expect bankruptcy filings to gradually increase, especially with the large amount of homes currently in foreclosure nationwide. Chapter 13 bankruptcies will become increasingly popular as more homeowners need to seek bankruptcy protection to stop a foreclosure on their home.

Chase Forgives Credit Card Debt

Last week, a Senate committee summoned top executives from Bank of America, Chase, and Citigroup to review unfair credit practices that can punish people who need the most help.

Wesley Wannemacher of Lima, OH, testified on how his $3,200 of credit card debt grew to $10,700, due to late fees and a 30% interest rate. Wannemacher incurred the original credit card debt in 2001, mostly to pay for his wedding. After making $6,300 in payments since 2001, he still had a remaining balance of $4,400, thanks to $4,900 in interest, $1,100 in late fees, and $1,500 in over-limit fees.

Chase decided to forgive the remaining $4,400 of Wannemacher’s debt, and even offered him an apology. “We simply blew it”, testified Richard J. Strednicki, Chief Executive of Chase’s card services division. Chase also agreed to stop charging over-limit fees at 90 days.

This is great news for Mr. Wannemacher, but what about the rest of Chase’s customers who have also been subject to similar interest rates and fees? Now Chase has admitted that it “blew it” and waived the remaining debt, I would hope that Chase would be willing to waive the debts of the thousands of their customers with similar stories, especially those with excessive over-limit fees.

Chase opened the door for others to contact them to discuss debts incurred through unfair practices, “We look at any situation in which we have made a mistake,” said Paul Hartwick, a spokesman for Chase. “We think that we are pretty fair and responsible in the way we deal with our customers.” If you have a debt with Chase, I encourage you to call them and request for any excessive fees to be waived. Unfortunately, without the high profile of Mr. Wannemacher’s case, I fear that your results might not be as good.

Mr. Wannemacher’s story is very similar to many bankruptcy clients that I have consulted. It seems like the credit card companies money making strategy revolves around pushing consumers into more debt than they can handle, then hitting them with every sort of late and penalty fee they can imagine. Finding the disposable income to climb out of debt can be very difficult, but is often impossible when the interest and fees are so high. At some point, consumers are left with few choices, and filing bankruptcy can be the best alternative.

It’s time for the Government to step in and take some responsibility for stopping the unscrupulous tactics of the credit industry. Relying on the credit card executives to change their own policies will result in nothing more than superficial changes, and a token forgiveness of $4,400 is just a drop in the ocean that isn’t going to help the rest of Chase’s customers who are also victims of unfair credit practices.

Bankruptcy and Student Loans

Can student loans be discharged in a bankruptcy?

Student loans can be discharged in a bankruptcy if you are able to demonstrate an “undue hardship” on you or your dependents. You have to prove to the bankruptcy judge that you are physically unable to work and your situation is unlikely to change for the remainder of the term of the loan.

Unfortunately, the majority of bankruptcy courts have interpreted the “undue hardship” standard very unfavorably towards debtors, and it is rare that student loans are successfully discharged. You must file a separate motion with the bankruptcy court to attempt to have your student loans discharged, and the exact laws can vary depending on the jurisdiction.

Many bankruptcy lawyers are reluctant to take on these cases because they can be complex and difficult to win. In a catch 22, the debtor is often left in a situation where they must prove that they cannot make any meaningful payments towards their student loans, but also have to pay a bankruptcy attorney for assisting them with such a time-consuming matter.

If you are unable to demonstrate an “undue hardship” and discharge your student loans in a Chapter 7 bankruptcy , a Chapter 13 bankruptcy may provide you with short-term relief. A Chapter 13 bankruptcy generally allows you to include your student loans in your monthly trustee payment. You may be eligible to pay back as little as 10% of the student loan over a 3-5 year period, but you will be responsible for the remaining 90% once the bankruptcy is discharged.

Consult with a local bankruptcy attorney to discuss if Chapter 7 bankruptcy or Chapter 13 bankruptcy can assist you with your student loans.

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