modern debtors prison

Modern Debtors’ Prison

Modern Debtors’ Prison

A long time ago, in the days of Charles Dickens and chimney sweeps, people were incarcerated until they satisfied their debts. These debtors’ prisons resulted in a Catch-22. You can’t get out of jail until you paid your debts. And you can’t pay your debts until you get out of jail. There’s now a new modern debtors’ prison.

The New York Times recently had a piece describing a new program to enforce debt. If someone falls behind on their student loan payments, they can lose their professional license and their job. Without income, this guarantees only one thing: debtors for sure won’t be able to pay their student loans.

 [I]n 19 states, government agencies can seize state-issued professional licenses from residents who default on their educational debts. Another state, South Dakota, suspends driver’s licenses, making it nearly impossible for people to get to work.

Student Loans are the Problem, not Debtors

debtors prison
We’ll set you free once you pay your debt.

It’s bad enough that student loans are the second highest kind of household debt, after mortgages. There are a lot of reasons for this. Firstly, the federal government subsidizes the Big School industry. The government encourages high tuition costs by guaranteeing them with programs like Direct Loans. If payments aren’t made, Uncle Sam can seize a tax refund, bank accounts, garnish wages, and seize other assets. And bankruptcy court isn’t a safe haven for the graduate with unaffordable student loans, as education debt isn’t dischargeable.

Big Education is an Overpriced Service Churning Out Poor Product


Because tuition costs are subsidized by government and a loan industry, there are disincentives for schools to compete in the open market. Let’s face it, if you knew you could sell a glass of lemonade for $1000, that you could get people to go into hock for it, and get Uncle Sam to use his muscle to help collect, why would you ever settle for only get 25 cents a glass? Especially if your competition had the same guarantees?

Colleges are not encouraged to compete with each other in the market to be the most affordable. Since there’re no market forces in play. The average student leaves school owing almost $40,000. Schools get the tuition paid from the government. The government can get it from you. As a result, very few can pay their way through school. Over 70% of graduates leave college with debt, starting their new career with a burden on their back.

More Competition for Jobs

Because everyone is encouraged to go to college, standards for getting into college are getting lower. Schools have an incentive to admit as many people as possible. Students are sold a bill of goods and pot of gold on the other side of graduation. As a result, more and more people are getting into college, leading to more competition for jobs once they graduate.

The Student Loan Bubble

Consequently, there is a student loan bubble, or student loan crisis. More and more graduates are in the job market leading to a saturation, some settling for lower-paying jobs, causing more and more unable to pay for their student loans.

The schools aren’t lowering the costs; why should they? Universities win, because they can charge whatever they want, independent of market forces. The government wins because it knows it can collect this debt because the graduate can’t ever escape from it.

The optimistic incoming student isn’t comparing costs as much as they look at school prestige, or maybe how well-known its sports programs are. They think they win. That is, until they graduate. Then they realize that maybe they can’t find a good-paying job as easily as hoped, or the job they could find pays much less than needed to make ends meet.

Faced with a choice between paying the student loan or paying rent and food, they choose the necessities. So they let the student loans go.

A solution is to reduce the payments for the student loans, and (cut future tuition costs). Another idea is to get the government out of student loan business. Yet another fix is to do all they can to bring the wayward sheep back into the fold. To increase forgiveness programs that waive interest and penalties to get the student loan out of default.

We Need Bankruptcy Reform on Student Loan Debt

Under 11 U.S.C. 523(a)(8) of the Bankruptcy Code, student loan debt is not discharged in bankruptcy. There are rare instances where it can be discharged, but the exception is so narrow as to hardly exist.  “Undue hardship” requires a showing that the debtor is mostly dead, and even that isn’t always good enough.

We need student loan reform of the bankruptcy code. Student debt reform is needed in bankruptcy so that more people can discharge their school debt.  What good is bankruptcy to the consumer debtor is the second largest form of debt is untouched by bankruptcy? Lower the bar a bit, so that after, say, five years after graduation if the student isn’t earning the median income, the schools don’t get paid the tuition. Imagine what that would do to admission rates.

License-Pulling Makes Repayment Less Likely, Not More

The government should be enacting change that makes it more likely the defaulting graduate can pay their student loans. It should not cutting the source of income. We’re through the looking glass to believe that if you don’t pay your bills we’ll take away your job so you can’t pay your bills. The license-pulling job-killing measure that’s spreading only ensures the jobless graduate earns less income. It makes it more likely they’re dependent on government programs. Finally, it puts defaulting graduates in a modern debtors’ prison that says they’ll get their license to earn money back as soon as they give enough money to pay their debt.

save home

Chapter 13 can Stop House Foreclosure

Chapter 13 bankruptcy can Stop  House Foreclosure

Save your Home and Catch up on the Mortgage

by Hale Andrew Antico, Esq.

In August 2005, just before the bankruptcy laws changed, I wrote in this space that there was a perfect storm brewing for the average consumer.  Since then, the bankruptcy laws have changes (in the name of reform), and indeed, it is harder — but not impossible — to get a fresh start.

One area where we can get into debt trouble and feel a financial squeeze is with regard to mortgage payments.  The past few years, property values have been soaring here in Southern California.  This has led to many people to refinance their homes and take “cash out” — in essence using their house as an ATM.  The result of this is that it leads to less equity and a higher mortgage payment.

What happens if these homes with tapped out equity drop in value?  We’re conditioned to believe that property values only go up Up UP! in Southern California.  However, in 1989-1991, the real estate market peaked, leading to dropping property values.  The result is that many people were “upside down” in their homes, meaning that that they owed more than it was worth.  We expect this from a car loan since a car almost always depreciates faster than we can pay it off.  But with a house?  Yikes.

Some experts believe that history may be repeating itself. Recently, economics experts are looking at reliable benchmarks like Price-to-Income Ratios and Price-to-Rent ratios and noting that home value are much higher than normal levels.  Even houses in your neighborhood are no longer selling within the same week they’re listed with someone offering $10,000 over the listing price.  Instead, we’re seeing “Reduced!” signs nailed onto those For Sale signs, and reading advice like that in the Los Angeles Daily News suggesting that you list your home in the lower 25% as related to the comparable homes in the neighborhood.  Is there a real estate bubble which will shortly burst, or is the housing market temporarily resting before it continues upwards and onwards?  No one knows for sure.

If you find yourself in the awful situation where you fall one or two payments behind on the mortgage, there is still hope to stop foreclosure.  A Chapter 13 bankruptcy might be the solution.  This option allows you to get some “breathing room,” stop the collection calls and headaches, and even stop a foreclosure.  People can fall a few months behind, they want to catch up but the lender won’t accept anything but a massive lump sum payment that the troubled homeowner doesn’t have.  A Chapter 13 case can allow you to catch your breath as you demonstrate how you will catch up on your past due mortgage payments, but on a schedule you can actually stick to and afford.  This very helpful type of bankruptcy allows you to reorganize your debt and save your house in Southern California and stop foreclosure.

Even for people who don’t have a home, a Chapter 13 bankruptcy can provide a light at the end of the tunnel.  It can provide a way to pay what you can afford, and in return, stop lawsuits, wage garnishments, collection headaches and yes, even foreclosures. And then, yes, you can be debt-free in three or five years.  That time will tick off the calendar either way… why not be out of debt in that span?

So, just because you’re a payment or three behind on that car or home and don’t think you can stop the house foreclosure, don’t lose faith.  There is a way to get some space and time to catch your breath.  You can be out of debt and most importantly, save your home.  Sometimes, bad things happen to good people.  We don’t intend for things to work out the way they do.  But when “life happens” and there is an unanticipated debt problem, when you’re ready to solve it then a Chapter 13 bankruptcy can be the solution to your problem.


Hale Andrew Antico (aka Attorney Antico) is an attorney who specializes in consumer finance. 

iheartmedia bankruptcy

IHeartMedia Bankruptcy About to Happen

IHeartMedia Bankruptcy

This weekend, IHeartMedia bankruptcy is about to finally happen. What is IHeart Radio? It’s the largest radio broadcaster in the United States. What is radio? That’s a different question. Ask your grandparents.

There’s speculation the broadcaster will file Chapter 11 this weekend. It won’t necessary end all the radio stations. It’ll just give the business a chance to restructure, kind of like a Chapter 13 bankruptcy, but a lot bigger.

With Sirius XM satellite, iTunes downloads, Spotify and Pandora streaming, music is delivered very differently — and more fragmented — than the old days of Radio Gaga. Think of it: music delivery has gone from CDs to mp3s to streaming apps on our phone. And that’s just the last 10 years. Radio is what you listen to for updates there’s a weather disaster or can’t get iTunes to load.

It’s a new world, and businesses need to adapt. The IHeartmedia bankruptcy shows that very lesson.