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Some Small Subprime Auto Lenders Are Shutting Down

Many experts are saying that the subprime auto loan industry is trending towards a major meltdown. Loan losses have forced banks and private equity sources to shut down funding for an increasing number of smaller subprime vehicle lenders. That lack of funding is causing those subprime vehicle lenders to close up shop, according to Bloomberg. Three subprime auto lenders that have filed for bankruptcy or shut down in recent weeks include Summit Financial Corp., Spring Tree Lending, and Pelican Auto Finance. What Went Wrong for Those Subprime Auto Lenders? Pelican Auto Finance, one of the private equity-sourced auto lenders, experienced trouble because of shrinking profits. That business handled deep subprime loans. Summit Financial Corp. filed for bankruptcy last month. The company, based in Florida, had allegedly been misreporting its losses from loans, according to lenders such as Bank of America Corp., Bloomberg reported. Spring Tree Lending was accused of fraud by investors. As a result, a creditor reportedly filed to force the lender into bankruptcy. What Is a Subprime Loan? Although it can vary a bit, subprime borrowers generally have a credit score that is under 600 to 640. There are several reasons that lead to lower credit scores. One reason is the borrower hasn't handled their accounts wisely in the past, and they have delinquencies and late payments on their record. Other borrowers haven't necessarily been irresponsible with their money, but they don't have much credit activity at all. [as reported in 4/12/18 Credit & Collection E-newsletter]


Nearly 1 In 5 Americans Has Crippling Medical Debt

Gail Briggs of South Holland is cancer-free after two bouts of life-threatening diseases in recent years, but her recoveries were nearly overshadowed by financial ruin. Briggs faced thousands of dollars worth of unpaid medical bills after she lost her job and health insurance following her breast cancer treatments in 2008. While she eventually obtained new employment, hospital bills continued to pour in during her treatments for colon cancer in 2013. "It was just too much. I just couldn't take it anymore," Briggs said. "It was so stressful, you know, me trying to keep up with everything." Briggs said her medical debt was made even worse by calls from debt collectors. "You can be anywhere at any time. At work, wherever, and the phone just constantly rings. You don't know which one is it going to be," Briggs said. Briggs said she made payments to collectors, but the fear of increasing her debt made her hesitant to schedule follow-up visits to the doctor. She made the decision to file for bankruptcy in 2017, in part due to her medical debt. "I'm used to being able to take care of myself," Briggs said. "When it was time to go to court, I didn't know what to expect."

Briggs is not alone. Medical debt is a leading cause of personal bankruptcy in the United States. Nearly one in five Americans have delinquent medical debt on their credit reports. That includes 1.2 million people in the Chicago area who owe nearly $1 billion, according to data compiled by Mike Antico of RIP Medical Debt. [as reported in 3/13/18 Credit & Collection e-newsletter]


National Association of Consumer Bankruptcy Attorneys ("NACBA") on 3/9/18 issued the following ALERT:

NACBA has received distressing news from members, that in direct violation of Bankruptcy Code 11 USC 525, t the Department of Education and its student loan servicers are kicking bankruptcy debtors out of their Income Driven Repayment plans. This can happen if debtors file Chapter 7 or Chapter 13 and regardless of whether they were current on the student loan payments. This potentially illegal expulsion, even if temporary, can upend the debtor's progress towards getting a Public Student Loan Forgiveness or other cancellation of their loans, resulting in clients angry with their attorney or worse. NACBA is immediately mobilizing to address this concerning situation.


President Trump Is Considering Making It Easier to Discharge Student Loan Debt in Bankruptcy

President Trump is considering making it easier to discharge student loan debt in bankruptcy, reported the Wall Street Journal on 2/21/18, Section A.p.2

Almost all student loans in the US are either from the US Department of Education (a federal executive agency) direct, or are insured by the US Government. President Trump could probably not change the standard for discharging student loans, by executive order, though he could tell the US Department of Education to be more liberal about allowing student loan debt to be discharged in bankruptcy. To get a nationwide enforceable change in the standard for discharging student loan debt in bankruptcy, President Trump would need to convince Congress to pass legislation to change 11 USC 523(a)(8) of the Bankruptcy Code, which sets the standard for when student loan debt can be discharged in bankruptcy. For many years, 11 USC 523(a)(8) has only allowed student loan debt to be discharged in bankruptcy if the debtor proves it would be an "undue hardship" on the debtor, or the debtor's dependents, if the debtor has to pay back the debtor's student loans, over the debtor's whole working life. With this standard, young persons filing bankruptcy cannot meet the standard, unless they are permanently disabled.


IRS Steps up Passport Withholding

The IRS has begun certifying federal tax debts of more than $50,000 to the State Department, which poses problems for travelers. Why? Because the State Department generally won't issue passports to taxpayers who have been flagged for delinquencies.

Internal Revenue Code 7345 allows this. Once the State Department is notified, it can either deny a passport application and/or revoke a current passport. If it happens while a taxpayer is out of the country, the State Department may issue what's called a limited validity passport that only allows a taxpayer's direct return to the U.S. However, the State Department will hold a passport application for 90 days before denying it.


Consumer Spending Rises in December as Incomes Improve

Soaring stock prices and improving job prospects have set Americans off on a spending splurge that is cutting into how much they sock away for retirement and rainy days, the Wall Street Journal reported. U.S. household net worth has risen from $56 trillion in 2008 to $97 trillion in the third quarter of 2017. The U.S. household saving rate dropped in December to its lowest level since the height of the 2000s housing boom. The saving rate was 2.4 percent of disposable household income in December, the Commerce Department said on Monday. That was the lowest rate since September 2005, not long after then-Federal Reserve Chairman Alan Greenspan began warning about froth in housing markets. The saving rate had risen to 6.6 percent when the recession ended in June 2009. [as reported in American Bankruptcy Institute e-newsletter of 2/1/18]


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