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Cuyahoga Falls Bankruptcy Law Blog

New rule on arbitration for banks and credit card companies

Ohio consumers who may have been prevented from bringing a class action suit against a bank or credit card company because of arbitration clauses contained in their agreements may now be able to do so because of a rule issued on July 10 by the Consumer Financial Protection Bureau. The clauses generally prevented consumers from getting together to file a lawsuit. The rule will apply to new contracts and will not ban arbitration agreements. It will simply take away their power to stop class action lawsuits.

Opponents of the rule say that arbitration provides quicker and less expensive solutions to consumers. However, Wells Fargo attempted to use an arbitration clause to block lawsuits, and Congress has passed laws to prevent arbitration agreements being used in mortgage contracts and loans made to people in the military.

Court rules that property owner did not abuse bankruptcy process

Ohio residents who are struggling to cope with unmanageable financial situations sometimes seek debt relief by filing Chapter 7 bankruptcies, but their petitions may be denied if it appears that they are abusing the bankruptcy process to take unfair advantage of their creditors. A Chapter 7 trustee made this argument in the case of a Virginia man who filed a Chapter 7 bankruptcy while paying the expenses associated with maintaining two homes, but a federal bankruptcy court ruled that the man had not abused the process.

The court made its decision after considering the totality of the man's financial situation. The debtor was finding it difficult to keep up with two mortgage payments and about $60,000 in student loans after it became clear that his elderly mother-in-law would no longer be able to take care of herself. The man's wife purchased a larger home in order to accommodate her mother. The Chapter 7 trustee claimed that the man could have paid his creditors if he had sold one of his homes or made partial restitution if he had filed a Chapter 13 petition, but the court ruled that the man had not acted in bad faith.

Late claims can bar creditors from repayment plans

For people who are facing severe financial challenges, including the possibilities of foreclosure or auto repossession, filing for bankruptcy may offer relief. It can also come with unexpected surprises, as one Ohio couple learned. The couple filed for Chapter 13, and notice was sent to all creditors. A late filing attempt left one secured creditor out of the repayment plan.

The creditor had a debt owed by the couple secured by a lien on their home. Unlike with unsecured debt, creditors are not required to file a proof of claim on secured debts to prevent them being discharged. However, they are required to file by a deadline to be included in repayment plans.

Debt to increase after Federal Reserve raises interest rate

Ohio residents who have credit card debt or mortgages with variable interest rates might want to consider the quarter-point interest rate increase made by the Federal Reserve on June 14. This increase affects loans with variable interest rates since they are based on the short-term rates set by the Federal Reserve. Because the Fed increased the interest rate, monthly payments on mortgages with adjustable interest or credit cards with variable rates may rise.

A certified financial planner noted that an increase in interest could reasonably cause debtors to decide to work toward paying off their credit card debt in a shorter period or to refinance their debt so that it has a fixed rate. Nonetheless, credit card debt will likely be affected sooner by the increase than a long-term mortgage.

Seven ways to discharge student loan debt

Student loan debt is a growing issue in Ohio and across the United States. Individuals are struggling to pay back loans they incurred to cover education costs, many of them paying significant portions of their income to loan companies every month. For those who are looking for ways out, there are seven options for discharging student loans.

Student debt receives special treatment under the Bankruptcy Code that makes it more difficult to discharge than other types of debt. Typically, in order to secure a discharge in bankruptcy, the debtor must demonstrate good faith efforts to pay back the debt, an inability to maintain a minimum standard of living and pay back the loan and a continuing circumstance of financial hardship.

Using home equity loans to pay credit card debt

Many Ohio residents suffer financial distress due to high credit card balances and other forms of unsecured debt. High interest rates normally accompany the credit card balances or personal loans, leaving the borrower with repayment terms that damage the monthly budget.

To obtain relief, some choose to consolidate their unsecured debt through a home equity loan. Borrowers will consolidate unsecured debts into a type of second mortgage on their home, paying off the high-interest debt in exchange for a second mortgage at a lower interest rate and longer payment terms.

I heard it's harder to qualify for Chapter 7. Is that true?

You may be struggling financially and overwhelmed by harassing communications from your creditors. You know that filing for Chapter 7 bankruptcy could help you, but you heard it's harder to qualify since the U.S. Bankruptcy code was changed.

First, you should know that just isn't true. Of the many myths about bankruptcy, this one often prevents people from seeking this form of debt relief. You may still qualify for Chapter 7, but the reforms require more paperwork and that you complete the means test.

Modification of a Chapter 13 plan

A ruling made by the U.S. Bankruptcy Court for the Western District of Arkansas may have an impact on Ohio debtors. It held that a couple could modify their Chapter 13 plan by returning their vehicle to the lender and treating a deficiency as an unsecured claim. While bankruptcy law does permit changes to an existing plan, some observers believed that it took a major change in circumstances to allow one.

However, the court ruled that there was no such requirement imposed on others who have tried to modify a plan. It had already been established that making modifications to an approved plan was allowed by the Bankruptcy Code. Therefore, the court saw no reason why the debtors' approved plan could not be changed whether or not a significant change of circumstance had occurred.

Good reasons to pay down credit card debt

Ohio residents who have high credit card debt may be causing numerous financial problems for themselves. Perhaps the most obvious impact is that payments can take money away from an emergency fund or retirement savings account. On average, an American household has about $5,700 in credit card debt. If it takes seven years to pay off that debt at an annual interest rate of 20 percent, an individual will pay $5,000 in interest.

That money could be put into a retirement account that returns 7 percent per year. Those who have an average amount of credit card debt lose $50 a month on average that could be put into such an account. That could translate into $25,000 in lost retirement money over 20 years. Therefore, it is in a person's best interest to get rid of credit card debt as quickly as possible.

Collectors can pursue stale debt

A Supreme Court decision in May 2017 set a significant precedent when it comes to debt collection that Ohio residents should be aware of. The decision makes it okay for collectors to file claims in bankruptcy proceedings for debts that have passed the statute of limitations and are thus time-barred.

This Supreme Court decision is a reversal of an appellate court's ruling. The 11th Circuit ruled that it was a violation of the Fair Debt Collection Practices Act to pursue a claim that was obviously time-barred from collection. Filing such a claim would be considered a false claim. The Supreme Court's reversal means that filing a proof of claim for such stale debt is not considered a false or deceptive practice under the law. The debt collection industry considered this change a return to the status quo and an end to the confusion created by the 11th Circuit's original ruling.

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