“Objection: calls for a legal conclusion.” That’s a perfectly good courtroom objection to a question asked of a witness at trial.  The rules of evidence make the court, not the witness, the sole arbiter of the law. What does that have to do with filing bankruptcy schedules, you ask. I suggest you import this courtroom maxim into your routine for exploring assets, debts and transaction history with bankruptcy clients. Don’t ask a question that calls for a legal conclusion. Broaden your questioning routine beyond questions that are based on conclusions of law and you are less likely to be surprised by your client’s testimony at the 341 meeting. They are laymen for a reason Even in our present day of internet “research” and courtroom TV, laymen get the law wrong, time after time.  If you couch your question in terms of a legal result, your schedules will be no more accurate than your client’s understanding of the law. Ever asked a client if they own a car and gotten back the answer,”no, the bank owns it“? The answer reflects the layman’s understanding that the lender has an interest in the car by having lent money to acquire it.  But the legal conclusion that the interviewee drew is wrong.  As a matter of law,  the borrower owns the car, the lender has a security interest in it. If you ask only, “have you transferred anything in the past year“, you may miss the consensual lien granted to a family member, because your client doesn’t grasp that the grant of a lien is a transfer. (54) The term “transfer” means— (A) the creation of a lien; (B) the retention of title as a security interest; (C) the foreclosure of a debtor’s equity of redemption; or (D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with— (i) property; or (ii) an interest in property.  11 USC 101(54) Similarly, as a practitioner in a community property state, I see all the time the spouse who believes that the form of title defeats the presumption that assets acquired during marriage are community property.  The car may be titled to the spouse, but absent a pre nup or some very specific language in the title, the car is community property and is an asset of any bankruptcy estate, even if only one spouse files. Conclusion-neutral questions If you ask “who do you owe money to ?”, you risk getting only the creditors who send a monthly bill.  If you add, “anyone claim you owe them money?“, you may get the disputed claims and the unliquidated tort creditors. Unlike your questioning of a witness in a courtroom, you don’t need to avoid absolutely the question that subsumes a legal conclusion.  You can ask, “do you own any real estate ?”. But you must also ask, “is your name on title to any real estate?” and “have you taken your name off of any real estate?” and “is anyone holding title to an asset that is really yours?” Including questions that focus on facts, and acts, may reveal other assets that we as lawyers would recognize as assets to be scheduled, or transfers to be disclosed. Image courtesy of wikimedia.    

A business lease often looms as one of the biggest claims in a bankruptcy case and a big issue for a small business. For bankruptcy lawyers,  the lease raises, as most of these things do, both traps and opportunities Beyond the common subject matter,  today’s observations are probably otherwise without a theme. Pivotal issue is identity of  lessee More often than you might expect, the lease for business premises for small business corporations  or LLC stand in the name of the individual shareholders. A bankruptcy case for the shareholders might otherwise leave their corporation unaffected.  Bankruptcy for the individuals may even benefit the corporation by  eliminating debt service on cards used for business purposes, an entirely different outcome follows if the business lease is in the name of the individual. In a Chapter 7, the right to assume a lease and therefore preserve the right of the business to occupy the premises, vests in the trustee, not the debtor.  So, the lease may be rejected and lost to the debtor’s business if they are the lessee. Lease is assumable in Chapter 13. Which brings us to my second observation:  the right to assume a lease lodges in the debtor in a Chapter 13.  In Chapter 7, only the trustee can make this call. Whether the business is a proprietorship or a separate legal entity, when the debtors are the lessees, they have standing to bring a motion to assume the lease.  Failure to timely file a motion to assume the lease may be a mistake from which there is no recovery. When rejection is great Often a business finds itself with a premises lease that is too expensive or otherwise no longer suited to a business that is changing or struggling.  Bankruptcy for the lessee may allow the business to relocate to cheaper space or space better sized for its operations going forward.  The breach of lease damages are captured and discharged in the bankruptcy case. Takeaway?   You’ve got to know who is liable on the lease and engage in some planning with your client if you want to make the most of a bankruptcy filing rather than making a mess of it. Image courtesy of johnsnape  

When considering filing for bankruptcy, or if you are already in a bankruptcy, you have probably heard a lot about the Bankruptcy Trustee without knowing who that person is or what it means for your case.  A Bankruptcy Trustee is an attorney that oversees the bankruptcy court.  The trustee is not a judge.   Every debtor that files for bankruptcy will be assigned to a trustee.  The debtor will meet the trustee in person at the 341 meeting.  The 341 meeting is also known as a "Meeting of Creditors".  Here the trustee's responsibilities, among many others not listed here, are to swear you in, make sure you understand your filing, and make sure that everything has been disclosed. Prior to your 341 meeting the trustee will review your petition.  The trustee will also require your most recent pay stubs, your most recent tax refund, and bank statements.  The trustee is looking for an idea of your income and your assets, consisting of property and money.  Many of your assets are protected in bankruptcy, the trustee is simply looking to see if some are not.  The trustee has to weigh your interests with those interests of the creditors. As mentioned previously, the trustee will swear you in.  You will testify on the record.  He will ask you if you read the schedules you signed.  If you have omitted anything this would be the time to mention the omission to the trustee. For those in a Chapter 7 Bankruptcy, the trustee will review the case, and if there are no assets will close out the case in a matter of months.  For those in a Chapter 13 Bankruptcy, you will have the same 341 meeting, however, the trustee will stay active in your case for the entire term of your plan.  Each year, tax returns and refunds will need to be submitted to the trustee, as well as any change in income or inheritance.Though the trustee is not a judge, he or she is still a part of your bankruptcy. You have an obligation to provide any information or documents that the trustee requests from you at any point during your bankruptcy.  Even in a Chapter 7 bankruptcy, you may risk having your discharge revoked before your case is closed if you do not provide requested documentation.If you still have questions, or would like to set up a consultation, contact a St. Louis Bankruptcy Attorney today!  

Does Social Security Count as Income in Bankruptcy?In determining whether social security proceeds count as income in bankruptcy, the answer is both yes and no.  For purposes of the Means Test (also known as Form 22A - Statement of Current Monthly Income/Means Test in a Chapter 7 and Form 22C - Current Monthly Income/Disposable Income in a Chapter 13), social security income does not need to be listed and will not count as income.  The means test is what determines whether a person is eligible to file a Chapter 7 bankruptcy based on their income.  If a person is below median for their household size, they can file a Chapter 7 bankruptcy.  If they are over, they may have to file a Chapter 13 bankruptcy.  Therefore, social security income not counting as income for purposes of the means test is extremely helpful for people who may be close to being over median and may help them file a Chapter 7 bankruptcy.Even though social security income does not get included in the means test, it is still necessary to include social security income in Schedule I, which states the current income for debtors, along with any other forms of income the debtor may have.  When taking into account a debtor's income and expenses in Schedules I and J (expenses), if there is money left over every month not allocated to the debtor's monthly expenses, the Trustee may file a 707(b) objection.  This means the Trustee believes there is abuse occurring.  The United States Code, Title 11, Section 707(b)(1) states, "after notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee ... or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter." The trustee may file a motion to dismiss when the exclusion of social security income in the means test allows for a person to qualify for a Chapter 7 bankruptcy, but a positive excess in Schedule I would indicate abuse because the debtor has excess funds available to pay their unsecured creditors.  It is very important for debtors to list all their monthly expenses so Schedule I and J are accurate.  If you would like additional information, please contact a St. Louis or St. Charles bankruptcy attorney.

How Can a Chapter 13 Bankruptcy Be Reinstated?In a Chapter 13 bankruptcy, a necessary portion of the petition is a Chapter 13 plan.  The plan is what determines how much a person pays every month to the Chapter 13 Trustee.  The plan includes any unsecured debt to be paid, taxes, car loans, back child support, arrears on a debtor's mortgage, mortgage payments to be paid through the plan (if debtor chooses to do this), student loans, and attorney fees, etc.  After factoring in all things that need to be paid through the plan, a monthly amount to be paid to the Trustee is assessed by the debtor's attorney.  The first plan payment is due 30 days after filing the bankruptcy and is due every month thereafter for a period of 36 to 60 months, depending on the plan.The debtor is responsible for making the plan payment every month.  If the debtor falls behind on plan payments, the Trustee can file a Motion to Dismiss for failure to make plan payments.  The Trustee can also file a Motion to Dismiss for failing to produce necessary documents, pay filing fees, or appear at a 341 meeting. In order to be reinstated for failure to make plan payments, the debtor has 14 days to become current with the Trustee and file a Motion to Reinstate stating whether the case was dismissed and reinstated previously and declaring that the deficiency has been cured.  The Trustee can file a response, and the Court will submit an Order granting or denying the Motion.  (L.R. 1017-2)If a case has been dismissed for failure to submit necessary documents, pay court costs, or attend the 341 meeting, the Court generally will not reinstate the case.  If filing a Motion to Reinstate, the Motion must contain information about when the missing documents were filed, the special circumstances why the debtor could not attend the 341 meeting, or when the filing fees were paid in full.  The debtor or debtor's attorney must file this Motion within 14 days.  (L.R. 1017-3)  For more information, please contact a St. Louis or St. Charles bankruptcy attorney.

If you owe the government taxes, the new bill introduced to Congress might be important for you. The Senate Bill 1813 passed the Senate on March 14 and could allow the federal government to prevent Americans from leaving the country. The tax debt must be in excess of $50,000 to the IRS. If that is the case the State Department would be allowed to revoke, deny or limit your passport. The IRS must have filed a lien or levy against you, but this can be done quickly as the IRS does not have to go to court in order to put a lien on your property. If you have made arrangements to pay your debt and are current on your installment payments, you might be exempted from the provision. Some attorneys criticizes the provision as unconstitutional because it would allow the IRS to restrict your freedom through a simple determination by an IRS employee that you owe taxes. Considering the state of the economy for the last few years, there are many people who would be affected by the bill. Supporters if the bill say that people who owe more than $2,500 in child support cannot get a new passport either. Tax debt can be wiped out through bankruptcy if specific conditions are met.

If you are unable to make your car payments, your lender may have threatened you with vehicle repossession or taken steps to repossess your vehicle. You may be considering filing bankruptcy in order to avoid repossession. In some cases, this is the best option.Automatic StayRegardless of whether you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, you're entitled to an automatic stay against your creditors while your bankruptcy is in process. This means that your creditors cannot take action to collect the debt until the bankruptcy case is finished. Thus, your car lender won't be able to repossess your vehicle while you are filing for bankruptcy. The automatic stay doesn't guarantee that you will be able to keep your vehicle long-term, but it does give you time to work out the arrangement that's in your best interest. It also depends on which chapter you file under. ReaffirmationIf you file for Chapter 7 bankruptcy, you can reaffirm your vehicle loan. This means that you sign a new agreement with your car lender to normally with the same terms as the original contract. Previous late payments are normally added to the loan balance. Reaffirmation leaves you responsible for your car loan rather than discharging the loan via bankruptcy. However, if the reason you can't pay your car loan is because of other debts, filing for Chapter 7 bankruptcy is often a good solution. Chapter 7 will discharge some of your other obligations so that you can use your income to pay your car loan instead of choosing between your car loan and other debts. Another alternative in a chapter 7 bankruptcy is to redeem your car loan. That means you will have a new car creditor who will pay off your car loan and you sign a new agreement with your new car creditor. Redemption pays off only the value of the vehicle, not the car loan. This means in most cases a saving. Additional attorney fees for filing the motion to redeem are normally part of the new car loan and don’t have to be paid by the debtor upfront. Motor vehicles are eligible for redemption if they have less than 100,000 miles and are less than 7 years old.Structured Repayment PlanIf you file for Chapter 13 bankruptcy, you can include your car loan in your structured repayment plan. This allows you to repay the loan over the course of the next three to five years, including all arrears you owe on the loan. As long as you stay current on your Chapter 13 plan, your vehicle will not be repossessed. Repaying your vehicle in a chapter 13 bankruptcy case is often a preferred option because the monthly plan payment which includes attorney fees, trustee’s fees and other debts is often lower than the original car payment. The car loan can be stretched out as far as 60 months and the debtor pays only the court’s interest rate which is normally lower than the contract interest rate. What is called in a chapter 7 “redemption” is called in a chapter 13 “cram down”. If your vehicle was purchased more than 2.5 years before filing of the bankruptcy case you pay only the value of the car and not the loan balance. This is often a substantial savings.No RetroactivityIt's important to realize that the automatic stay is not retroactive. If your lender has already garnished wages it is most often too late to recover the money. However, everything that is taken out after filing, will need to be returned to you. If your bank account is frozen you can keep your money as long as the bank has not paid the money to your creditor. If your car has been repossessed, your car creditor has to return the case as long it has not been sold at an auction.. Thus, if you are considering filing for bankruptcy, you need to make your decision before the it is too late and your creditor either sells your property or receives your money.ConsiderationsSome people think they can avoid repossession without filing bankruptcy if they voluntarily surrender their vehicle. However, if you give your vehicle back to the bank, in most cases the lender reports it as a voluntary repossession, which harms your credit. It may be in your best interest to file for bankruptcy instead. If you wish to surrender your vehicle through bankruptcy, you won’t be liable for any deficiency after your car creditor sells your vehicle.Before you file your bankruptcy attorney will discuss whether you have any non-exempt equity in your vehicle which would have to be paid to the trustee in a chapter 7 or would be part of the chapter 13 plan payment.If you are living in the St. Louis area and have a question for a bankruptcy attorney in St. Louis, please do not hesitate to contact us. Our office offers a free consultation and has four offices throughout the St. Louis Metro area. Offices are located in St. Louis City, Florissant, St. Charles, and Granite City.

How your credit will be effected by filing for bankruptcy depends on your situation prior to filing.  Credit is calculated using five factors: your payment history, the amounts you owe, the length of your credit history, the amount of new credit you have, and the types of credit you use.  The two biggest facts are your payment history and the amounts owed. Many people worry about the impact that filing will have on their credit.  Bankruptcy is visible for 7-10 years, however, it is important to note that everything you do is visible for 7-10 years.  Every late payment, or missed payment, is visible for up to 10 years.  If you are making multiple late payments or missing multiple payments every month you might be doing more damage to your credit than you would be by filing for bankruptcy.  Bankruptcy is a one time hit to your credit. The biggest factors in your credit score are the payment history, accounting for 35% of your credit score, and the amounts you owe, accounting for about 30% of your credit score.  Filing for bankruptcy will lower the amount that you owe drastically, so this area of your credit will actually improve.  In fact, in some cases, where the credit score is quite damaged, filing for bankruptcy may actually improve your credit score. It is also very possible that your score will not improve, or decrease.  The best thing you can do to increase your credit score is make payments on time.  Speak with your attorney about ways to improve credit.  You may want to get a small credit card that you can pay off in full every month.  It is important to remember that while the bankruptcy is visible for 7-10 years, it will not be calculated in your credit score for that long.  More often than not, people are able to purchase vehicles, and even houses, after filing. Filing for bankruptcy can eliminate your debt, or at least get it to a manageable level.  Filing for bankruptcy can give you a fresh start and help you take control of your financial situation.  Bankruptcy coupled with informed and responsible decision making can get you on the right step to living a debt free and financially stable from here forward.If you still have questions, or would like to set up a free consultation with a St. Louis Bankruptcy Attorney, contact us today!

By Patrick Arden  Speaking to a college crowd at the University of Michigan in January, President Barack Obama noted that for the first time Americans owe more on their student loans than on their credit cards. "That's inexcusable," Obama said. "Higher education is not a luxury—it's an economic imperative."But even as the president laid out a program that included earlier loan forgiveness, lower interest rates, and caps on repayments of loans, he was putting the screws to graduate students. Starting this July, graduate-student loans will no longer be subsidized, meaning students will see their debts multiply with interest even before they've received their degrees.The change will save the government an estimated $18 billion over the next decade—most of which has already been redirected to fund Pell Grants for undergraduates—but it's sure to tack thousands of dollars onto the debts of individual graduate students. The repercussions for graduate schools might be far-reaching, as people grapple with the question of whether a $50,000 master's or a $100,000 law degree is worth the money."The burden on graduate students is growing, and this makes a bad situation worse," says Eli Paster, a Ph.D. candidate at the Massachusetts Institute of Technology and the head of legislative concerns at the National Association of Graduate-Professional Students. "We don't want a disincentive for people to pursue a graduate degree." Borrow Now, Pay Later Graduate students rely almost twice as much on loans as undergraduates, according to the College Board. In 2009–10, grad students financed 69 percent of their costs with federal loans. Nearly half of the average student's $15,888 in loans was federally subsidized, with the government paying interest while the student is in school and for six months after graduation.Under the Stafford loan program, the largest of the government's school-financing plans, most full-time grad students have been able to borrow up to $20,500 a year at 6.8 percent interest, $8,500 of which would be subsidized. (Medical students can qualify for up to $40,500 in Stafford loans.) If students require more money, they can turn to Plus loans, which are unsubsidized and have an interest rate of 7.9 percent. Repayment of Stafford loans may be deferred for six months after graduation, though the unsubsidized portion accrues interest while the student is in school; repayment of a Plus loan begins after just 60 days.With the federal government no longer subsidizing Stafford loans, graduate students will immediately start accumulating interest on all debts. A student who took out just the $8,500 a year in subsidized loans would have repaid $46,953 over the next 10 years, according to the National Association of Student Financial Aid Administrators. Unsubsidized loans would add an extra $6,385 in interest payments.Of course, many graduate programs have much higher costs. The average master's student graduates with more than $50,000 in loan debt, says the Council of Graduate Schools, $77,000 for those with doctoral degrees. The Association of American Medical Colleges estimates the elimination of subsidies will increase the ultimate cost of loans for the average medical student by as much as $20,000. Passing the Bucks While acknowledging the student-loan crisis, Obama stopped the federal subsidy for graduate loans on the grounds that the government also owes too much money. Early reports blamed the move on the debt-ceiling debate, but the scheme was first contained in Obama's proposed budget for the new fiscal year."The idea had come up in the past, but it had never gotten much traction until it appeared in the president's budget proposal," says Patricia McAllister at the Council of Graduate Schools. "There was a search for savings, and once this was on the table, it was hard to push it off."The death of subsidized loans was sold to student advocates as a necessary sacrifice to save the Pell Grant Program, which provides 9 million undergraduates with grants of up to $5,500 a year. "Congress now views all spending as bad, and we wanted to make sure the Pell Grant didn't get cut," recalls Rich Williams at the U.S. Public Interest Research Group's Higher Education Project. "Unfortunately, the money had to come from other programs in the higher-education pot."That's small consolation to graduate students, who warn undergraduates to watch their backs. Already, interest rates on undergraduate subsidized loans will be doubling to 6.8 percent this summer, and the elimination of all subsidized loans might not be far behind, Paster says. "Graduate students went first, but undergraduates will be next.""At least the money saved from eliminating subsidized loans went into a student-aid program rather than deficit reduction. That was a real possibility," says Megan McClean at the National Association of Student Financial Aid Administrators. She's troubled that a lot of recent changes to financial aid have come as part of budget negotiations, instead of being deliberated by legislative committees, which first conduct research and hold hearings with experts. "That creates better policies," she says.This might also explain why many graduate students were caught by surprise at the elimination of their subsidized loans. "When financial-aid changes happen in the budget, it's not really announced," Paster says. "You find out about it when you apply for loans before the start of the next semester. At that point, you don't really have a choice, except not going to school."Some worry the higher costs could make graduate school solely a province for rich kids: On average, black and Hispanic students already have higher debt loads than whites and Asians.McAllister says the government must make sure that debt doesn't dissuade students from going to graduate school. The Bureau of Labor Statistics projects that in the next decade, 2.6 million jobs will require people with advanced degrees. "If we want to meet these workforce needs, we should be investing in graduate education," she says, "not balancing the federal budget on the backs of students." The $80,000 MFA Student debt might already be affecting some graduate programs, as nationwide enrollment dropped slightly in 2010, the first decline in seven years, according to a recent report by the Council of Graduate Schools. But it's a mixed bag: While fewer students are seeking doctorates in the arts and humanities, more have enrolled in business schools and the sciences.That trend is mirrored at area universities. The number of graduate students at CUNY has remained virtually unchanged at about 33,000 since the fall of 2009, yet its Graduate Center has seen gains in the health sciences. Likewise, Columbia's professional schools have grown in the past year, while enrollment has been flat in its Graduate School of Arts and Sciences. NYU reports similar findings, though new applications are up a bit this year.MFA graduate student Monica Johnson found unwanted fame for showing up in Zuccotti Park last November to talk about the $88,000 in debt she accumulated during college and graduate school. She understands those who criticize her for a costly degree choice."At this point, I'd never say an MFA is the best degree, but there was a logical line of reasoning that led me here," Johnson says. "Both of my parents have associate degrees from a technical art school in Michigan, and both of them were able to have viable careers." She points out that not even law school is a safe bet these days. The job market is having a hard time absorbing new law graduates, and as a result, the number of students taking the LSAT has dropped by 25 percent over the past two years."I wasn't comfortable taking out the loans, and I kept asking people, 'Is this what you're supposed to do?' I'm not blaming anyone, but now I wish someone would have pulled me back. Everybody said, 'You just got to do it.'"Johnson says her big mistake was starting her master's at Pratt Institute, where she borrowed more than $40,000 to cover one year's tuition, before leaving to enroll in an integrated-media art program at Hunter College. "I have a job, and I'm paying only $1,000 a class," she says. "It really is the price tag that's the problem, I think." Facing the Future The students gathered in front of St. Francis College in Brooklyn don't look like the next class of suckers, but everyone interviewed during a recent lunch hour was thinking about graduate school. Most claimed a graduate degree is now necessary to get a good job."Going to grad school gives you an advantage, but so many people go," says Christopher Santoro, a junior from Dyker Heights. "Grad school's become what college was 30 years ago."Santoro has paid for his education with Stafford loans. Tuition at St. Francis is $18,100 a year, and 95 percent of students receive financial aid. "It's going to take a while to pay off all the loans," Santoro says. "Especially if I go to law school, it will be a lot, lot more. But I have to do it. I'm even contemplating going to grad school in engineering because law-school graduates are having a hard time getting jobs. My mother is the head of human resources at a bank, and she says everybody they hire is coming out of an Ivy League school."It's good that Obama's talking about financial aid," Santoro says, and he doesn't blame the president for taking the subsidy away from federal loans for graduate students. The student-debt crisis is another inherited mess, he says. "I'm a libertarian, but if I had to vote right now, I'd vote for Obama. I don't like anyone on the Republican side. We have no choice." Copyright 2012 Village Voice, LLC.  All rights reserved.

By Neil deMause  In tales of the economic miasma of the early 21st century (none but the great and powerful Krugman dare speak the D-word), the Debt-Ridden Student has become a stock character. She or he has graduated from college or is about to, saddled with mammoth loans accrued in order to pay rising tuition—and arrives in the work world only to find that the high-paying jobs that were supposed to repay all that debt have vanished along with Lehman Brothers.In recent months, though, a new worry has emerged: In addition to destroying their own lives, are today's debt-ridden college graduates going to trash the economy as well?It's the meme that will not die, reappearing with every study reporting new levels of student indebtedness. (Over $1 trillion! More than Americans' cumulative credit-card debt!) Mincing few words, William Brewer, chair of the National Association of Consumer Bankruptcy Attorneys, told The Washington Post last month, "This could very well be the next debt bomb for the U.S. economy."Brewer minces only slightly more words in a conversation with the Voice. "My concern is same song, second verse," he says, noting that bankruptcy lawyers were among the first to raise red flags about the mortgage crisis. "We're seeing a tremendous amount of defaults." He points to a Federal Reserve Bank of New York study released last month that showed that 15 percent of Americans with credit reports have student debt, and more than a quarter of those are behind in their payments. While he acknowledges that student debt's "tentacles into the economy are not the same," Brewer foresees a "chilling effect" on such things as new-car purchases and the housing market, as graduates deep in debt are unable to qualify for mortgages.Hogwash, responds Center for Economic and Policy Research co-director Dean Baker. "The numbers are just totally different," says Baker, who has some cred of his own when it comes to mortgage-bubble gloomcasting, having warned of an eventual housing crash as early as 2002. "We're talking about something on the order of a trillion dollars in student-loan debt. The housing-market peak was over $20 trillion."What about indebted students reducing their spending as a result? "It's a damper, no doubt about it," Baker says. "That list of big purchases—first car, new house—those are things that undoubtedly many people will have to put off." As for the overall economy, though, he notes that the rule of thumb is that people spend 4 to 5 percent of their wealth each year. Even if you double that under the assumption that young people burn through their money like energy drinks, that's still only $80 billion a year. "That's a little over half of 1 percent of the GDP. It's not trivial, but it's not anything that's going to put us into a recession."Still, that's not likely to be much comfort if you're one of those holding a share of that trillion dollars in debt—especially if you came of age in the last decade, when student debt was falling to historic lows. That all changed starting a few years ago, to the point where in the class of 2010, two-thirds of students graduated with some outstanding loans, according to the California-based Project on Student Debt. Average debt load per student: $25,250.That number is rising an average of 5 percent a year, with no signs of slowing down, says Lauren Asher, president of the Institute for College Access and Success, which runs the Project on Student Debt. "Student debt has become a fact of life for more and more Americans and for the majority of college graduates," she says. "That was not always the case."While rising tuition has gotten the most press, Asher blames a number of factors: "With the down economy, you have this painful convergence of less money in state coffers, less money in family bank accounts, more need and demand for education, and more eligibility for aid." The upshot, she says, is increased costs when students can least afford them.As a result, loan-default rates are rising as well, in some cases, dramatically so. The number of students who default within two years of leaving school—"the tip of the tip of the iceberg of student distress," Asher says—has risen from a low of 4.5 percent in 2003 to 8.8 percent in 2009, the most recent graduating class for which numbers are available. And a study by the Institute for Higher Education Policy further found that for every student debtor in default, two more have already fallen behind in their payments.A look at the New York City default numbers shows wide variation from campus to campus. Where most colleges, including NYU, Columbia, and CUNY, sport default rates in the low single digits, two schools—ASA in Downtown Brooklyn and Manhattan's Apex Tech—managed to send more than 1,000 indebted students out into the world (with or without degrees—the numbers don't distinguish) in 2010, more than 20 percent of whom have already defaulted.ASA and Apex Tech are both private for-profit schools, and Asher says that this is par for the course for the growing industry: Nationwide, students at for-profits are more than twice as likely to default on their loans as those at public schools and three times as likely as students at private nonprofits, according to Department of Education data. (Not all for-profits are created equal, though: For-profit Monroe College in the Bronx managed to cut its default rate from more than 10 percent to just 5.6 percent in the most recent report.)"Too many are borrowing a lot of money to get degree certificates that turn out not to have the value that they were led to expect," Asher warns. In some cases, students have gotten federal student loans to attend accredited schools, only to find that their particular courses were not themselves accredited, leaving them ineligible to take licensing exams.Steve Gunderson, president of the Association of Private Sector Colleges and Universities, counters that because they cater largely to a poorer, more adult-student population, for-profits are inevitably going to see more defaults. "We're dealing with a constituency that, if not for grants and loans, would not have an opportunity to pursue higher education," he says.Although students defaulting on their federal loans is a concern for the government, which gets stuck with paying off the lender and then acting as collection agency, it's no walk in the park for the indebted, either. Student-loan debt is unlike mortgage debt: Where a homeowner can, in a worst-case scenario, walk away from an underwater house and leave their bank holding the bag, you can't dump an unwanted college degree. Nor can you even duck out on student debt by declaring bankruptcy, as lenders are allowed to keep after you for repayment even if you've gone bust.The only exception is in cases of "undue hardship," and Brewer warns that it's nearly impossible to qualify for. When clients come to him staggering under student-loan debt, Brewer says, he'll sometimes jokingly hand them a bus schedule. "They say, 'What's the bus schedule got to do with it?' I say, 'Well, you walk out in front of my office here, step in front of a bus, get yourself in a coma, I probably can prove undue hardship.'"For those staring down a mountain of student debt, there are some options—so long as they're standard-issue government loans, at least. In 2009, the U.S. Department of Education launched Income-Based Repayment, under which debtors with low incomes can defer making payments on their student loans and can be absolved of debt altogether after 25 years. Indebted graduates can get loan forgiveness in 10 years if they're working in a public or nonprofit job, and under new rules issued by the Obama administration, starting in 2014 low-income debtors can have their payments capped at 10 percent of their income, down from 15 percent currently. (Asher's group runs a website, ibrinfo.org, that includes a debt calculator to see if you're eligible for the program; the new federal Consumer Finance Protection Bureau offers its own debt-repayment assistant at consumerfinance.gov.)As bad as "stay poor for 25 years, and you're off scot-free" sounds, it's a breeze compared to what awaits those who've taken out private student loans, which make up an estimated 10 to 20 percent of all student borrowing. With private loans, warns Asher, "you're really at the mercy of your lender. They're underregulated, they mostly have variable rates—they have a lot in common with exploding mortgages." Loan companies can place you in default for being even a day late, as opposed to nine months of nonpayment on government loans. Some private loans don't even discharge on the borrower's death.Several solutions have been proposed to untangle the student-debt mess. Brewer's group, predictably, would like to make it easier to unload student-loan debt through bankruptcy—something that was possible with private loans until 2005 and which U.S. senator Dick Durbin of Illinois has proposed be reinstituted. At the same time, a few dozen colleges, including Columbia, have pledged to change their financial-aid policies to cap or eliminate debt for low-income students, though it's uncertain how long this voluntary commitment will remain in place.Meanwhile, students are casting a harder eye on the costs they'll rack up while earning a degree—when they can figure it out at all. Since last fall, all colleges have been required to post "net-cost calculators" on their websites, showing how much you'll actually pay per year based on your income level. These are still a work in progress, though: They can be hard to locate on school websites, and some (Columbia's in particular) require students to enter a daunting amount of financial information before learning how much they'll be expected to pay toward tuition."College pricing is still a lot more opaque than it should be," Asher says, and the convoluted loan world doesn't help any. She recalls an award letter she received during her time in graduate school for public policy. "I could not tell what was a grant and what was a loan. I had to call the office and say, 'Can you tell me what this acronym means?'"With a student-loan system like this, the economy had better not hang in the balance. Copyright 2012 Village Voice, LLC, All rights reserved.