Tuesday, May 21, 2013


Here are 15 Tips to help you avoid filing bankruptcy. It took me 30 years to learn what I will now teach you in 5 minutes:

1.    Don’t make your happiness depend on buying things that you can’t afford.  To be more happy and healthy, try eating healthy, exercising and enjoying time with friends and loved ones.  Studies show that buying things does not work as well as you might think in terms of making you happy.  Sharing experiences with loved ones and friends does help.


2.    Avoid buying a car that you cannot afford.  Avoid car payments that you cannot afford.  Car repossessions almost always are accompanied by a large balance due that the lender sues for and gets.


3.    To the maximum extent possible, use debit cards, not credit cards.  If you don’t have the money now, you can’t afford it.  This is really an extension of #1 – don’t buy things that you cannot afford.


4.    If you have a job, be a good employee.  Many of my clients find that losing their job is what drives them into bankruptcy.  Being unemployed makes it harder to get the next job and harder to pay your bills.

If you can, get a job that also provides good health insurance.  Health insurance is expensive and even more expensive for individuals than for group plans.  Many of my clients have large medical bills as a factor that contributes to their having to file bankruptcy.


5.    When times are good, save money for a rainy day.  Don’t assume that your income will always continue at its highest level.


6.      Buy and learn how to use personal financial software like Quicken or QuickBooks.  It gives you a great way to see, understand and manage your finances, and it helps motivate you to make more money and hold your expenses down.  What you measure is easier to improve.  If you do not pay attention to something, it usually does not get better by itself.


7.    Don’t personally guarantee debts for anyone.  In my experience, people often get sued for debts that they personally guaranteed for others.  Personally guaranteeing debts looks easy at first – just sign here –  but then ends up very hard when you get sued.  Personal guarantees alone can be enough to force you info bankruptcy


8.    If you own a business, avoid signing long term leases.  One broken lease can drive you into bankruptcy.


9.    If you have employees, use a payroll tax service.  Don’t risk having the IRS come after you for the unpaid trust fund portion of your payroll taxes.  If you cannot afford the payroll tax, you cannot afford the employee.


10.  File your tax returns on time.  If you don’t, you will incur substantial penalties and risk having the IRS create returns for you that invariably result in you owing much more to the IRS.


11.     Limit your student loans.  Think about your realistic prospects for a job with and without the education that you are borrowing money for, and what your income is likely to be.  Many people come to me with student loans of $100,000.00, $200,000.00 or more.  These loans can almost never be discharged in bankruptcy.  Like personal guarantees, signing for a student loan seems easy at first but can make life very difficult in the end.  Think carefully about whether or not the student loan will increase your earning potential.


12.    Avoid gambling and drugs – either one can lead to bankruptcy.


13.   Cut Personal Expenses. If you really care about avoiding bankruptcy, you can sacrifice some luxuries, such as eating out, buying new clothes or getting premium cable or cell phone service, for a while. Also consider moving to a less expensive home or renting out a room in your home.


14. Before you decide to file bankruptcy, get expert free advice from an expert bankruptcy attorney to see if bankruptcy is  your best option.  You may be able to avoid bankruptcy by simply waiting to see what happens.  If no one is suing you, you made decide to wait and see what happens next.  Don’t Panic. 


15.   Last words:  There is absolutely nothing to lose by getting a free consultation with a certified specialist in bankruptcy law to see if bankruptcy is right for you.

Friday, May 10, 2013

Proposed California Class Action for Former Silver State Helicopters Students Shot Down

On April 11, 2013 the United States Court of Appeals for the Ninth Circuit published its Opinion in a proposed class action case against KeyBank National Association, Key Education Resources, and Great Lakes Education Loan Services, Inc. This case was heard by all judges of the court, rather than by a panel selected by them. The legal phrase for this is "en banc."

The court's decision included both a victory for the Plaintiffs -- 2 California resident former students of SSH (the reversal of the district court's dismissal of plaintiff's claims) -- and a victory for KeyBank -- the instructions to the district court to compel arbitration. The larger victory was won by KeyBank, which has now effectively killed any chance of a California class action against it based on the claims asserted in the Kilgore case. Plaintiffs' counsel have informed me that they will not try to appeal this ruling to the United States Supreme Court, so this ruling will be final.

Here is the link to the complete Opinion: http://www.gpo.gov/fdsys/pkg/USCOURTS-ca9-10-15934/pdf/USCOURTS-ca9-10-15934-2.pdf

The court's ruling orders the individual arbitration of the claims brought by the 2 Plaintiffs Matthew C. Kilgore and Willaim Bruce Fuller. The court rejects the Plaintiffs' claim that the Promissory Note's ban on class action arbitration is unconscionable under California Law and also rejects the Plaintiffs' claim that individual arbitrations would be too costly.

Here is a summary of the Court's opinion:  
The en banc court reversed the district court’s dismissal of plaintiffs’ claims, reversed the denial of defendants’ motion to compel arbitration, and remanded with instructions to the district court to compel arbitration. In an appeal involving a putative class action by former students of a failed flight-training school who seek broad injunctive relief against the bank that originated their student loans and the loan servicer, the en banc court held that the district court should have compelled arbitration under California law. The en banc court held that the arbitration clause was neither substantively nor procedurally unconscionable under California law. The en banc court held also that this case does not fall under the narrow “public injunction” exception to the Federal Arbitration Act that was recognized in Davis v. O’Melveny & Myers, 485 F.3d 1066, 1082-84 (9th Cir. 2007).

Judge Pregerson dissented. Judge Pregerson would hold that the arbitration clause was unconscionable, and thus unenforceable. Judge Pregerson's dissent makes great reading for any former SSH Student. With headings like "Hustled by the school; hustled by the bank" and "Ignored by the Court," Judge Pregerson makes a strong case that the arbitration agreements enforced by the Court are both "Procedurally Unconscionable" and "Substantively Unconscionable." Here is a sample from Judge Pregerson's dissent:

"Silver State Helicopter School did not do a good job training helicopter pilots, placing them in jobs, or managing its own finances. But it did make a convincing sales pitch. Silver State promised its students that they would get the training required to get good paying jobs as commercial helicopter pilots.At flashy career fairs around California, Silver State worked hard to sign up prospective students for its helicopter pilot training program. Former Silver State student, Mathew Kilgore, declared under penalty of perjury:

The seminar was very impressive and glitzy. There were numerous helicopters onsite and the school appeared to be very professional. [Silver State’s CEO, Jerry Airola] was very convincing and portrayed Silver State as a top flight school. The presentation made clear that Silver State was very selective about which students would be chosen to attend the school . . . Mr. Airola emphasized that all of the tuition to fund the entire Silver State education could be obtained through Silver State’s partner lender, KeyBank. Mr. Airola also emphasized that . . . the loans would only cost the students about [a] hundred dollars a week at 4% interest.

Airola’s claims were not true. Silver State accepted almost all applicants who could get their loans approved. Silver State lacked sufficient equipment or instructors to properly train its students. The variable rate interest on the loans would rise far above four percent. Matthew Kilgore, William Fuller, and the other 120 putative class members believed what Airola told them and signed up. They took out $55,950 loans, which KeyBank promptly forked over to Silver State before students took a single class. But Silver State knew it was headed for a crash landing. By 2008, Silver State had racked up ten million dollars in debt against fifty thousand dollars in assets. Moreover, despite Silver State’s alluring promises, there was no significant demand for helicopter pilots with a Silver State degree. And it wasn’t just the school that knew it. Defendant KeyBank knew it, too.

KeyBank, an Ohio-based lending giant, participated in the fraud that Silver State perpetrated on unwitting students. From 2003 to 2005 KeyBank financed ninety-five percent of the tuition students paid to Silver State. KeyBank printed up lengthy loan papers that lacked the Federal Trade Commission’s Holder Rule Notice. 16 C.F.R. § 433.2 The Holder Rule required the loan contracts to notify students that KeyBank was subject to the same claims and defenses as Silver State. Id. The Holder Rule protects borrowers, such as the students, from being legally obligated to pay a creditor like KeyBank “despite breach of warranty, misrepresentation, or even fraud on the part of the seller.” 40 Fed. Reg. 53,506, 53,507 (Nov. 18, 1975). By omitting that notice from its printed loan contracts, KeyBank may have sought to insulate itself from liability for Silver State’s misleading promises. Silver State then presented those faulty loan contracts to prospective students and “pressure[d] the students to sign the [master promissory notes] as soon as possible,” according to an affidavit of Silver State’s former student finance manager Jody Pidruzny. And sign up they did.Once a student signed the promissory note, KeyBank immediately transferred the full amount of the loans to Silver State. KeyBank then turned a profit by selling the students' loans on the securities market to investors. Defendant Great Lakes Educational Loan Services, Inc. continues to service those loans by collecting payments from students, and notifying credit reporting agencies when students fail to pay. KeyBank loaned students tuition money to attend Silver State knowing that Silver State was financially volatile. See Editorial, Student Debt and the Economy, N.Y. Times, March 10, 2
2013, at SR 10 (“Because private loans offer little flexibility, borrowers in bad straits have few options except default, which makes it difficult for them to get jobs or credit, or even to rent apartments.”) 2004 email between KeyBank Vice Presidents Paul McDermott and Rodney Landrum predicted that Silver State “could be the next ‘big one’ to go under.” Nevertheless, KeyBank made more than ten million dollars in loans to Silver State students over the following two years. In 2008, Silver State filed for bankruptcy and closed its doors. Students could not recoup the amount of their unused tuition because Silver State sought protection under Chapter 7 bankruptcy proceedings. Kilgore, Fuller, and their classmates were left holding the bag with no degree, no helicopter piloting career, and no opportunity to train. The students’ failed attempts to launch flight careers saddled them with huge private loans that are collecting interest and weighing them down. The private loans students incurred to pay for Silver State helicopter pilot training were not subsidized or insured by the federal government. Private student loans are generally more expensive than federal loans, especially for students with lower credit scores or limited credit histories. Students could borrow larger amounts because there are no loan limits for private loans. Moreover, students who hold private loans are not eligible for federal programs that allow them to reduce their monthly payments based on their income, or have their loans forgiven after working for ten years in public service jobs.

Unlike federally guaranteed loans, private student loans are not discharged should the school go out of business. The students themselves cannot discharge these loans in bankruptcy proceedings unless they can prove that “excepting such [student] debt from discharge . . . would impose an undue hardship.” 11 U.S.C. § 523(a)(8).


There are 2 different schools of thought as to what former SSH students with KeyBank loans should do next. One school, led by Andrew August and Kevin Rooney of Pinnacle Law Group, is that the students should file individual arbitration proceedings against KeyBank. Although the costs of these arbitration proceedings is estimated by Andrew at between $10,000 - $15,000.00 arbitration costs + legal fees, Andrew believes that he may be able to compel KeyBank to pay these arbitration costs. The prevailing party can be awarded legal fees under the terms of the promissory notes that former SSH students would be litigating about. If you are a former SSH student, a California resident, have an unresolved KeyBank loan, want to take action now to seek a final resolution with KeyBank as opposed to doing nothing, feel that an arbitration now is in your best interest, and are willing to assume the cost of litigating and the risk that you may not prevail, I recommend that you contact Andy and Kevin at the following special email address: keybanklitigation@gmail.com

The other school of thought, led by me, Michael Jay Berger, is to do nothing. That may sound funny but here is my reasoning: In the more than 5 years that I have been representing former students of Silver State Helicopters, KeyBank has never sued any of my clients and never filed an arbitration proceeding against any of my clients. Why is that? I presume that KeyBank always does what it thinks is in its best interests. Therefore, for the last 5 years, KeyBank must have felt that filing a lawsuit or an arbitration proceeding against any of one my clients is not in its best interests. Based on KeyBank's efforts to enforce the arbitration provision in its agreement with former SSH students, it seems unlikely that it will reverse course and now claim that it is free to file lawsuits against former SSH students instead of complying with the arbitration provisions that it put in the student loan agreements. Private arbitration is expensive and KeyBank would have to pay the costs to initiate each and every arbitration proceeding that it wants to start. Between the initial costs and the costs for retired Judge's time, Andrew August's estimate for the cost of these private arbitration proceedings is $10,000 - $15,000.00 per student. Many of these students don't have the money and will not be able to pay even if an arbitration award is entered against them.

Students who initiate arbitration proceedings against KeyBank need to be prepared for the possibility that they will lose. In that case, KeyBank is likely to move to confirm any arbitration action and turn the awards into fully enforceable state court judgments. This could lead to all of the usual judgment enforcement collection actions, including, but not limited to, bank account levies, wage garnishments, the filing of abstracts of judgment to create liens on any real property owned by the debtors and examinations of judgment debtors. I like finality when it is good, but prefer delay if the finality will be bad.

It is interesting to note that Citibank, which forgave 100% of my client's SSH Student Loan Debt, and SLX, which settled with the vast majority of my SSH Loan clients, also never filed a lawsuit or arbitration proceeding against any of my clients. Seen in this light, it seems possible that KeyBank will continue to make negative reports on nonpaying borrowers' credit reports, continue to send collection letters, and continue to make collection calls, but not actually sue or institute arbitration proceedings against former SSH student borrowers. For the students that I represent, there is an additional level of deterrence, as KeyBank and its counsel are aware that these students are represented by competent counsel.

In the 5+ years that I have been representing former SSH students, I have settled the vast majority of their student loans at a large discount. In each case, I charged the former student a flat fee of $800.00. This is something that I am proud of, as the law on student loans favors the banks and is not good for the students. For the remaining former SSH students with loans from KeyBank that I have not been able to settle, there is now a choice to be made.