Ryan’s wages are being garnished because of his student loan debt, but Ryan is trying to avoid bankruptcy at all costs.
Ryan owes $70,000 on his student loans and $114,000 on his mortgage; admits a credit card has gotten him into trouble; has $450 a month in car payments, plus a wife, two children, and monthly bills. Ryan asked The Press to withhold his real name.
“At this point, I really don’t know what to do. I think it is about time I talk to a lawyer because I don’t know what the steps are because there is no way I’m going to be able to afford this debt,” Ryan said.
“The only thing I worry about is them chasing after the house, and having me borrow against the house,” Ryan continued. “If you ask me, if I can go through life with the garnishments, that’s alright. You take what you can.”
Ryan, whose age is “30-something,” knows a friend who faced bankruptcy and Ryan sighed, “He’s in pretty bad shape.”
Local bankruptcy attorney Douglas L. Perras estimates in this area “close to 50 percent of bankruptcies are young people.”
“There are a variety of reasons,” said Perras. “They don’t realize that laws allow the credit card companies to jack up the interest rates and change the terms. Late charges and penalties can add up fast if they don’t keep the payments up. I don’t think they have enough awareness of the risks involved with credit cards,” continued Perras.
“Be careful with student loans. Make sure you’re getting a degree in an area where you are going to be able to make some money from it,” Perras admitted.
“When you get your student loans, remember generally you can’t get rid of those in bankruptcy most of the time now. You have to have a very severe financial hardship, like just about unable to make any income at all, before you can get rid of a student loan debt,” Perras said.
A Last Resort
Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 to prevent abuse in the bankruptcy process. It has become more complicated, but does not affect everyone.
“It doesn’t really affect people under $46,000 family income, so all the things about it hurting single moms are not really true, because under that level, very little has changed,” claims credit counselor John Walters of Community Credit Counseling Specialists, Inc.
There are two types of bankruptcy that deal primarily with consumers and debt — Chapters 7 and 13.
Chapter 7 is liquidation bankruptcy where assets not exempt are collected and sold, and proceeds distributed to creditors. All eligible debts are discharged.
Chapter 13 is known as the wage earner reorganization, used by individuals to reorganize their financial affairs and to repay a portion of their debt over a period of three to five years.
As a matter of public record, a bankruptcy would be reported on your credit report. For Chapter 7, it would remain for 10 years, for Chapter 13 seven years.
Bankruptcy can make it more difficult to start a business or purchase a home. Creditors may also charge a higher interest rate or require a larger down payment, Perras said.
According to Money in Motion, published by the American Center for Credit Education, bankruptcy does not wipe out all debts. Taxes, child support, court ordered restitution, student loans, certain debts incurred 70 days prior to filing, among others, are not dischargeable.
Although each case is evaluated separately, Perras says the bankruptcy court cannot attach the applicant’s personal property to unsecured debts, such as money owed on a credit card.
“They can’t make it a secured debt unless you sign a security agreement,” said Perras. “They can get a judgment in a court of law for the money. They get that, they can attach and seize your bank accounts and garnish wages, which can be pretty severe, until its paid, so that can be pretty painful.”
Credit counseling organizations want to prevent consumers from reaching the point where they are losing possessions from bankruptcy proceedings. Since the new bankruptcy laws were passed in 2005, his organization has been given more opportunity to do that.
“Now, if you go to a bankruptcy proceeding, one of the requirements for filing is sitting down with a registered credit counselor, going over your budget, and doing everything we do anyway. You are mandated to do that. You do not have to accept our plan or advice, but you’re mandated to sit and listen,” explains Walters.
“The goal is to keep people out of bankruptcy. Our way is the hard way, because you’re paying everybody back everything.”