Ten Years Out of School and Still Struggling with Student Loans?

Posted by Robert Weed / in Blog, Student Loans and Bankruptcy, Weekly Posts /

Are You Ten Years Out of School and Still Struggling with Student Loans?

Recent student loan policy changes by the Biden Administration can help people still struggling with student loans. These are new rules making it possible to discharge your student loans in bankruptcy.  In bankruptcy, you can clear your federal student loans if you can clear these three hurdles.

1. You Have to Be Bankrupt

This new policy allows you to get rid of your student loans by filing bankruptcy.  In most cases to file bankruptcy, you have to be below the median income: that means, making less money that half the people in Virginia (or your state, where you are.) 

Before this new policy, you had to be almost starving.  Certainty of hopelessness was the rule.  Now, you have to be worse off than most people. Worse off than most people–that’s something you can show.  Under the old certainty-of-hopelessness rule, there was no chance.  “That door is nailed shut,” That’s what the bankruptcy chief judge here said under the old rule.

2. You Have to Be Ten Years Out of School

The standard repayment plan for federal student loans is ten years.  At the end of ten years, if you’d been able to stay on the standard plan, you’d be paid off.  This new policy agrees that ten years of struggling with student  loans is long enough.

3. You Have to Have Tried to Pay

This new policy gives you a lot of ways to show you tried to pay. Making payments is of course the best way to show you tried.  But there are others. Applying for a lower payment shows you tried. Applying for a payment deferment–surprise–shows you tried! Signing up with a scammer who promised to help–even that shows you tried!

Did you just blow off the student loans? Then this new student loan bankruptcy policy won’t help you. You have to have tried something.

This New Plan is NOT Automatic

Student loans are still not just another debt in bankruptcy.  (Before the Education Amendments of 1976, student loans could be discharged in bankruptcy just like any other debt.)  It’s a separate legal step and it requires its own court case–an adversary proceeding–and its own attestation form. It’s not automatic. The government and the judge have to agree. But if you can clear these three hurdles, you shoulds be able to clear your student loans.

Do I have to Be Ten Years Out of School to Be Eligible Under Biden’s New Policy?

There are other factors that can also work.  Never got your degree is one. Or a medical disability. Being over sixty-five. Or chronic unemployment.  If any of those factors apply to be, you may be able to clear your debts under the Biden Administration new policy.

Are Student Loans a Good Enough Reason to File Bankruptcy?

I’ve talked to over a thousand people who were struggling with student loans.  All of them had other financial problems too.  If student loans are part of a financial burden that you can’t carry any more, it’s time to talk to a bankruptcy lawyer.  

I Just Renewed My Membership in Consumer Advocates

Posted by Robert Weed / in Weekly Posts /

Why I’m a Member of the National Association of Consumer Advocates

I’m a bankruptcy lawyer.  When I first started I said “All I do is Bankruptcy.”  What I found out is that people in financial trouble are magnates for illegal stuff being done to them.  A lot of that is fair credit reporting violations and fair debt collection violations.  

I wanted to know more about those things, so I joined the National Association of Consumer Advocates.  

I learned more about FCRA–fair credit reporting law.  And creditor harassment law–the FDCPA.   I’m NOT and expert on either of those, but I can spots violations and can sue on behalf of my bankruptcy clients.  Years ago, I posted on my website that “suing debt collectors is my hobby.”

I see a lot fewer violations than I used to.  I’m guessing that’s because enough lawyers got good at FCRA and FDCPA law that the credit bureaus and debt collectors had to get into compliance with the law.  But I’m still on the lookout for violations when I talk to my clients–and I warn them on after bankruptcy violations to look out for themselves.  

NACA is a Leader in the Fight Against Compulsory Arbitration

Compulsory arbitration is a personal hot button of mine.  The Seventh Amendment to the Constitution guarantees the right to trial by jury in civil cases.  The Federal Arbitration Act, at least as it’s been enforced, overrides that constitutional right.  NACA is a leader in the fight to change that.  

Unlike fair credit reporting and fair debt collection, compulsory arbitration is NOT something that comes up much with my bankruptcy clients.  But it’s an important consumer right.

 So I just renewed my NACA membership for another year.

Chapter 13 and Tax Relief for Seniors Save Marian’s House

Posted by Robert Weed / in Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

Marian Saves Her House from Reverse Mortgage Foreclosure: She Filed Chapter 13 and Got Fairfax Senior Citizen Tax Relief

Before her husband died, Marian had taken out a reverse mortgage on her home. That way, they hoped, she wouldn’t have a house payment and she’d never have to worry about having a place to live.

But after a couple years, Marian got a reverse mortgage foreclosure notice.

In a Reverse Mortgage, You Don’t Have a Mortgage Payment But You Still Have the Tax Payment

Having a reverse mortgage does NOT mean you have a free place to live. You don’t have to pay the bank, but you still have to pay real estate taxes and insurance. Marion’s monthly tax was $390.00–lots cheaper than rent but not free.  

The reverse mortgage company paid the real estate taxes–but Marian was required to pay reverse mortgage company back. She didn’t understand (and didn’t have much money) and so she didn’t do it. For three years. That gave the reserve mortgage company the reason to foreclose her.

Chapter 13 in the Nick of Time

Marion’s house was scheduled to be sold out from under her on July 28. We filed Chapter 13 on July 27.  That stopped the foreclosure and the Chapter 13 plan gave her five years to pay the mortgage company back for those taxes.  Wew!

But Marion now has to make the chapter 13 payment. It’s $280 a month.

                                                  

Tax Relief for Seniors Saves the Day

On top of that $280 a month Chapter 13 payment, how can Marion pay next year’s real estate taxes?  Good news. Fairfax County–like most of the counties in Northern Virginia–has tax relief for low income seniors. (Here’s the info for Loudoun. And Prince William.) She applied and got approved. No more real estate taxes. Her budget is very tight, but she will save her house.  

PS  For More Info on Danger of Reverse Mortgage Foreclosure

What happened to Marian happens a lot. And not everybody moves fast enough to stop it. The Naples Daily News had this great article in 2019 about senior citizens in reverse mortgages who end up losing their homes in foreclosure.    

 

Settling Her Debts through Americor, Sheriff Brings a Warrant

Posted by Robert Weed / in Weekly Posts /

Trying to Settle Her Debts through Americor, Liz gets a Warrant in Debt

Liz was shocked when the sheriff brought a warrant in debt for her $2680 Victoria’s Secret account.

Liz Tried to Settle Her Debts

Liz tried to settle her debts. She worked through Americor and gave them $664 per month. Victoria’s Secret was her biggest credit card, how come they hadn’t been taken care of.

She then looked at her credit report and saw only one account–CareCredit for $712–was reporting to the credit bureaus as “Settled for Less Than Full Balance.” Everybody else was just reporting “past due–charge off.” Her credit score was terrible.

Liz had been paying $664 a month to settle her debts. What had she gotten? Credit score in the low 500’s and the sheriff bringing warrant in debt papers to her door.

Bankruptcy Stops the Warrant in Debt

Frustrated and angry, Liz called me. I had done a bankruptcy for her once before back in 2011 and she remembered my name. With her new bankruptcy, the warrant in debt was blocked, and in four months, she was clear of credit card debts totalling $25,237. (Americor had told her it would take two years, and of course it didn’t work.)

Americor Reviews

PS Americor claims to be “The Nation’s Leading Provider of Consumer Credit & Debt Relief Solutions.” Mixed in with their really good Google reviews, are one-star reviews from people who had the same experience as Liz.

We knock out Dyck-O’Neal, Save Lonnie’s Clearance and his Family Home Place

Posted by Robert Weed / in Blog, Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

We knock out Dyck-O’Neal, Save Lonnie’s Clearance and his Family Home Place

Lonnie was about to lose his federal job. His clearance review showed he owed Dyck-O’Neal $127,153 from a foreclosure deficiency. He needed to take care of that. Or he’ll lose his clearance and his job.

Obviously he didn’t have $127,153.  And when we looked at it, he couldn’t file Chapter 7 bankruptcy either.  When his parents died, Lonnie had inherited a share of their home place. The parents’ home place was paid for. A Chapter 7 bankruptcy trustee would take and sell it.

Chapter 13 Bankruptcy Payment Plan–How Can He Afford it?

He needed to do a Chapter 13 bankruptcy.  To protect his clearance by paying his debts.  And protect the family home place–by paying his debts.  But, in a Chapter 13 payment plan, how much would Lonnie has to pay?

The Chapter 13 trustee demanded a payment Lonnie couldn’t afford. The trustee didn’t want the whole $127,153.  But he wanted most of that to be paid.

We solved that problem by knocking out the Dyck-O’Neal $127,153 claim. We knocked them out under the statute of limitations.

What’s the Statute of Limitations

The statute of limitations is a law that says if a creditor leaves you alone too long, they are too late. More than five years after the mortgage company accelerated the loan (starting the foreclosure process) was too late.  (That’s five years under Virginia law. Each state sets their own rules on this.)

Based on the records we had, it looked like the five years was up. Dyke-O’Neal had more complete records than us–at least they should have. But they didn’t fight.  So, we won.

Now all Lonnie has to pay are the smaller debts he was paying anyway.

 

Don’t put it off

Foreclosure or repossession? Talk to a bankruptcy lawyer right away. You probably have eligibility now–you need to find out of course.  And in three or four years when they come after you, you might not.  (Lonnie could have filed Chapter 7 when the house foreclosed; after his parents died, then he couldn’t.) Usually relying on good luck doesn’t work real well. 

 

 

 

Linda Pays through Beyond Finance and Gets Garnished

Posted by Robert Weed / in Alternatives to bankruptcy, Chapter 13, Weekly Posts /

Linda Pays Mariner $6113 through Beyond Finance. Then She Gets Garnished

Linda Cash (not her real name) wanted to clear her debts without filing bankruptcy. As an alternative to bankruptcy, she signed up for Beyond Finance.

Linda needed Beyond Finance to help her with Mariner. (She originally borrowed $5383, got behind, and now owed Mariner $6113.65.) 

Beyond contacted Mariner and then told Linda “Congratulations–we’ve settled Mariner for $6113.65.”  In 29 installments, they told her.

Now, Linda thought $6113 was all she had to pay. She paid $213 per month; $213 was what Mariner told her to pay. At the end of 28 payments, she thought she had only $150.00 to go.

Bad surprise. Mariner wanted $6113.65 at 36% interest. Mariner had agreed to $213 a month until paid in full. It would take 66 months–not the 29 Beyond told her–to pay Mariner with interest.

How bad was it? Linda had paid $5964 and she still owed $4808.  (Of the $5964 she paid, $4681 had gone to interest.)

Linda complained to Beyond. Beyond didn’t explain.

She argued with Mariner. Mariner garnished her. That’s when Linda called me.

Bankruptcy Would Have Been Better

Linda is eligible for two kinds of personal bankruptcy.  Chapter 7 bankruptcy says “sorry I can’t pay this debt.”  Chapter 13 is a court approved payment plan.

Chapter 13 would have done what Linda wanted.

If Linda had signed up for chapter 13, the bankruptcy court would have made Mariner accepts payments at no interest. (The Chapter 13 trustee does charge a handling fee on each payment–so it would have taken 32 payments at $213 to pay off Mariner. Not the 29 payments Beyond promised her.  But way better than the 66 payment settlement from Mariner.)

Chapter 7 is Even Better

As a single person in Virginia making less than $67,815, Linda is eligible to file Chapter 7 bankruptcy. Chapter 7 discharges–clears–her finance company loans, like the one she had with Mariner. If she had filed Chapter 7 in the spring of 2019, instead of going to Beyond, she’d be back to good credit today.  She could get a car loan at a good rate, or even qualify for a mortgage and buy a house.

And she would have saved the $5964 she paid through Beyond to Mariner.

Beyond This Screwup

I don’t think Beyond was intentionally tricking Linda–they just screwed up. But I do say these debt settlement outfits are rarely a good idea.

Why Not Debt Settlement? Actually They Warn You

Here’s what it says in small print on the Beyond website.  “The use of debt consolidation services will likely adversely affect your credit. You may be subject to collections or lawsuits by creditors or collectors.”  In other words, if you sign up for their program, you will wreck your credit; then expect to get sued.  Probably not the best idea.

For people who really, really want to pay their debts, and need only a little help, I often recommend debt managment programs. They can usually get each payment down a little off the regular minimum monthly and still pay everybody off in five years.  Debt management plans have to be licensed in most states, including Virginia. 

Most legit debt managements programs (they are sometimes called credit counselling) won’t BS you. If they can’t make your budget work, they will tell you so, and suggest bankruptcy.

Other alternatives to bankruptcy

For other alternatives to bankruptcy, you can disappear. Or just don’t pay.

 

 

 

PS Why Does it Take So Long to Pay off a loan at 36%.  Here’s the chart:

 

Alternatives to Bankruptcy–Disappear

Posted by Robert Weed / in Alternatives to bankruptcy, Blog, Weekly Posts /

Alternatives to bankruptcy–disappear

One alternative to bankruptcy is to just disappear.  Why am I bringing this up, now?

This week somebody asked Quora (a website I follow) how to legally disappear.  The answer, sign up for a Caribbean cruise. Get off at the Virgin Islands. Don’t get back on.

For most people, bankruptcy works. But when people ask me for alternatives, I share my best ideas.  I’ve added the Caribbean cruise to the list.  

One Way to Get Ready for Recession: Bankruptcy

Posted by Robert Weed / in Blog, Weekly Posts /

Get Ready for a Recession

Michelle Singletary in Wednesday’s Washington Post writes about getting ready for a recession.  Two pieces of her advice: clear your credit card debt; and start saving.

Suppose the recession hits hard ten months from now–April 2023.  Will your credit cards be paid off?  If there’s a lot of slack in your budget, then maybe you can get there.  But what if you are barely making it now?

Filing bankruptcy, for many people, is the quick and easy way to clear your credit card debt. And if you start now, your bankruptcy can be finished this year, so you can start saving.  

Before the recession: Take a hard look at your monthly payments

Take a look at where your monthly payments are going now, before the recession. Are you rapidly reducing your debt? Or only paying just enough on the cards that you can use them to buy groceries for another month? If you are not digging your way out of debt now–while inflation is still new and job openings are everywhere–you will never be able to do it when times get tight.

For most people, bankruptcy works.

 

 

Are Changes on the Way for Bankruptcy and Student Loans?

Posted by Robert Weed / in Blog, Weekly Posts /

Are Changes on the Way for Bankruptcy and Student Loans?

There’s one big change Joe Biden can make (without Congress) so people who can’t afford to pay their student loans can clear them in bankruptcy.

During his presidential campaign, Joe Biden promised to help people who can’t pay their student loans.  So far, he’s helped people who got sucked in by scam colleges.  He provided closed school student loan forgiveness for people who went to ITT and Corinthian/Everest College.  Plus, for almost everybody, he suspended student loan payments because of the pandemic.

There’s talk now of $10,000 forgiveness across the board.  But that talk of $10,000 forgiveness across the board gets a lot of criticism.  It helps some people who don’t need help.  And does very little for people who really are overwhelmed.

There’s more that can be done.  That’s why pressure is building to treat student loan debt in bankruptcy like any other debt:  Ordinary debts debts that you can clear in bankruptcy if you can meet the bankruptcy requirements showing that you can’t pay.

“Undue Hardship”

The bankruptcy law now says student loans can be cleared only in cases of “undue hardship.” Over the years the courts have said “undue hardship” basically means paralyzed, never work again.  Under that definition, according to the chief judge of the bankruptcy court here in eastern Virginia, you just can’t win in court on “undue hardship.” The judge said “that door is nailed shut.”

Calls for Change in the Undue Hardship Law

Recently, several news outlets have called for changes to the undue hardship rule.  Here’s a recent article in the Wall Street Journal.  And one from Politico.  And another in Bloomberg. 

But There’s No Chance Congress Will Act

Personally, I think there is zero chance that Congress will change the undue hardship rule, although there have been some steps in that direction.  Sen. Dick Durbin (D-IL) is a long-time supporter for better bankruptcy laws.  March last year he was able to get Sen. John Cornyn (R-TX) to join him on introducing a bill to change the undue hardship rule for people who had been struggling with student loans for more than ten years.

But I don’t think it will go anywhere. Why?  In our current political environment, support for bi-partisan cooperation often leads to defeat in the next primary.

On Bankruptcy and Student Loans, Biden Can Do One Thing

Government lawyers, the U.S. Department of Justice, go into bankruptcy court and fight against consumers trying to prove “undue hardship.”  Those government lawyers argue that the consumer should work longer hours or get their children to work to help pay for the loans.

Biden can call off those government lawyers. If the consumer, without government opposition, can persuade the judge–and that may still be tough–the consumer should win. And if the consumer wins at trial, the government should not appeal.

Good News  November 8 2022

President Biden did exactly what we hoped for on November 8, 2022.

Here’s more info from the New York Times.

 

Let me tell you about Sandy Chamberlain

Sandy, not her real name, is a divorced mom with three kids, 17, 8 and 7. Her annual is $68,952 and she gets $900 a month in child support. (That will drop when the teen reaches her 18th birthday.) That seems like a lot of money but it doesn’t go far around here.

As a family of 4, she has automatic income eligibility to file Chapter 7 if she’s making less than $121,793. She’s under that eligibility cutoff by $42,000 a year!  And her student loans? Sandy has $70,757 in student loans.  Her payment, if ever hopes to pay it off, is supposed to be be $554.00 a month. Even though she’s $3500 a month below the average for a family of four in Virginia, and it’s considered no “undue hardship” to make her pay $554 a month on the student loan.

Never gonna happen.  That $554 almost makes her car loan payment and she needs that car a lot more.  (Besides transportation for herself and the kids, she does Instacart driving in months where the food and money run out before the next paycheck.) The government will never get the $70,757 student loan paid. And $10,000 student loan forgiveness won’t really change that.

Rents around here are shooting up even faster than housing prices.  If Sandy’s bankruptcy could clear her student loans, she’d be eligible to buy a house in a couple years.  But with $70,000 in student loans just sitting there unpaid, she can’t ever get a mortgage. (And that blot on her credit means she pays higher interest on her car loans, too.) 

Can Sandy Come Back?

Sandy’s bankruptcy will be over this July. And we can’t do anything about her student loans now, because we can’t win when the government lawyers come in to fight against us. But if President Biden changes the government policy later this year–or next year–Sandy will be able to come back to court. Under the law, Sandy is allowed to reopen her bankruptcy case for “further relief.” 

A chance to show hardship would be a relief.

The Whole Idea of Bankruptcy

The whole idea of bankruptcy is that the country is better off if people who cannot pay their debts are able to start over. That should apply to student loans, too.  For people whose degree has made them good money, bankruptcy wouldn’t apply.  For people who just can’t pay, those people, and their kids, and the country are all better off if the debts are cleared.

We’re hoping Joe Biden agrees and will help Sandy out.  

 

Bankruptcy and Depression

Posted by Robert Weed / in Weekly Posts /

Bankruptcy and Depression: No, I’m Not a Doctor

This post is about bankruptcy and depression. No, I’m not a doctor. (Actually my law school degree says I’m a JD– a juris doctor). But I see depressed people a lot. And because I see it a lot, I’ve read up on it.

The VA says that depression can be caused by trauma. As a bankruptcy lawyer, I see a lot of people who’ve been knocked down by physical or emotional trauma.

Next, according to this NIH article, many physical illnesses also cause depression. Academic research–the first and most famous by Professor, now Senator, Elizabeth Warren–shows that most bankruptcies follow medical problems.

Finally, this blog from the Harvard Medical School says depression can be a side effect of many medications.

I talked to someone this week–I’ll call her Farah–who had all three of those factors. And she was obviously, seriously depressed.

We Talk Openly About Depression

If one of my clients looks depressed, I bring it up. When I talk openly about depression, most people who look depressed tell me that they already know they are. Most of those, like Farah, have already sought treatment. If they haven’t, I encourage them to get help, saying something like this: “Depression is tied to chemical changes in your brain.  You can’t just pull up your socks and get over those chemical changes.”

Bringing up depression directly is what the Cleveland Clinic calls “assertive communication.” The Cleveland Clinic says one way people can help their depressed friends is to talk openly about what we see.

After I bring it up, I try to coax people to taking a look at their depressed self; and encourage them to remember their “real self.” So, I don’t tell people to shake off the depression. (Telling depressed people to get over it is NOT recommended.) Instead, I tell them to recognize how seriously it is affecting them. I try to show what the Cleveland Clinic article calls “empathy.”

Depression is often combined with guilt. When that feeling of guilt to comes up, I bring up Donald Trump. Look, I tell people. Donald Trump used “the chapter laws” (he meant Chapter 11 but didn’t say that) because he lost money in the casino business.

A few years ago I calculated that in his fourth Chapter 11, Donald Trump discharged more debt than all fifteen thousand people I’ve helped put together.

If Trump, who claims to be worth ten billion dollars, can take advantage of the “chapter laws,” you can too.

The Purpose of Bankruptcy is to Help You

Ninety years ago, the Supreme Court, in the famous case of Local Loan v Hunt, said that giving people in bankruptcy a fresh start in life is a “public…interest.” In other words, the country is better off when people are able to get back on their feet, financially.

That’s the point of the bankruptcy laws. The country is better off when people like you can get back on your feet.  (The credit card companies will do fine either way.)

Bankruptcy and Depression

I love being a bankruptcy lawyer because I can help almost everyone I talk to.  Of life’s problems–and people with depression are usually battling many of life’s problems–too much debt is usually the easiest one to fix.

PS For More Information on Depression

Here’s an article I think is helpful from Psychology Today.