Articles Posted in Chapter 13 Bankruptcy

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arkovich_law-narrowThe Navient settlement today reflects a broad shift in the understanding of higher education debts that can be summarily discharged in bankruptcy.

The case is Homaidan v. Sallie Mae Inc., Bankr. E.D.N.Y., No. 17-01085, motion filed 7/21/23.

If you are considering bankruptcy to fix your finances, make sure to get your student loans taken care of also.  We do both, and if you’d like to set up a strategy session to discuss your specific situation (credit card debt, house, student loans, income and assets) and understand your options (and you’re in the Tampa area or its surrounding counties), please see the link below.  We freely discuss any options you can take advantage of if bankruptcy is not a good option as well.

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arkovich_law-narrowParent Plus loan borrowers and grad loan borrowers have received the short stick for all the recent announcements post the Supreme Court decision on student loan forgiveness.  The new bankruptcy rule will allow debtors to create a Chapter 13 Plan to easily provide IDR credit:

Changes:  We have revised §685.209(k)(4)(iv)(K) to provide that the Department will award credit toward IDR forgiveness for months where the Secretary determines that the borrower made payments under an approved bankruptcy plan.

While there is a process for this to occur now it is not widely understood and rarely used.  In most cases, borrowers owe more in federal student loans when they exit bankruptcy than what they owed before filing.  There is no reason why borrowers should not receive IDR credit towards their student loans during a Chapter 13 bankruptcy which often is five years.  This has been a big bone of contention of ours for several years.  Depending upon how the new change will be applied (the regs aren’t out yet), debtors should be able to obtain IDR credit while making a court approved payment plan which could be substantially lower than the normal IDR payment amount outside of bankruptcy.  This may be the only recourse available to those with Parent Plus loans who don’t or can’t double consolidate their loans in time to avoid ICR.  It may also be the only way to address a high payment for those with grad loans who have high medical, housing or family expenses and are stuck with an unaffordable IDR payment even under SAVE.  It will be particularly good for those in the next 12 months who won’t see the SAVE payment reductions until July 2024.

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arkovich_law-narrowCan I do All This Myself or Do I Need an Attorney?

Yes, dealing with your debt is something you can do yourself. But like anything, sometimes it is better to hire someone who does this day in and day out. Particularly if you have a lot of debt or assets to protect.  Many of the borrowers we speak with are unaware of key governmental programs and how to jump through the various hoops to qualify. The student loan system itself is the least transparent of any system that I have ever seen in my 30 years of practicing law. For private loans, negotiation or litigation can be involved; both of which a borrower is not well suited for in most cases. We know deadlines that may apply for tax free relief.

If it’s a bankruptcy, we know all the trustees, the rules, the loopholes, basically how to not only get things done, but also to obtain the best result.

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arkovich_law-narrowBasically, a Rule 2004 exam is just like any other deposition.  In every bankruptcy case, a 341 creditors meeting is set approximately five weeks after a bankruptcy petition is filed.  A 341 examination is usually short (about 15 minutes on average) and viewed as the only opportunity for a creditor, trustee or other interested person to ask questions of  debtor under oath.  Rather than the “only” opportunity to test the debtor on the merits of his or her case, a 341 meeting is actually only the “first” opportunity to ask a debtor questions about their financial history or other relevant matter.  A much lesser used option exists to get a debtor under oath – the Rule 2004 Exam.

A 2004 exam can cover your pre-filing actions or conduct.  Often a debtor’s financial condition and debts are the prime focus of the exam.  Many 2004 exams are associated with a possible action to deny a bankruptcy discharge or some other adversarial case.  It is more formal and often involves production of documents.

Don’t forget-under § 727(a)(3), a discharge can be denied if the debtor, “failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case…”

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arkovich_law-narrowWe received this inquiry today from a fellow bankruptcy attorney:

I have a client who had a Chapter 13, which due to it being a 100% plan, ended off paying off the Proof of Claim Amount at 100% in the bankruptcy.

Years later, (Insert Private Student Loan Company Here) is coming back after her arguing that during the bankruptcy, interest continued to accrue, and now she owes $3,700 in interest. In the Chapter 13 Trustee’s Final Account they paid the POC principal PLUS interest.

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arkovich_law-narrowThe FHA Covid-19 Forbearances allow for reduced or suspended payments without specific terms of repayment, for six months at a time, up to 18 months.  Deadline for applications was May 11, 2023.  The end of the health emergency is now over.  If you’ve lost your income, job change or divorce for instance, you may have qualified for this relief.

A FHA Covid-19 Modification is called Advance Loan Modification.  If a mortgage loan is in forbearance, the review will occur within 30 days of forbearance ending.  For those mortgage loans are not in forbearance, if the loan is 90 plus days delinquent it must be reviewed for a modification offer on or before 10/30/2024.  This is still in effect!

January 2023 new guidelines:  a substantial change is that the guidance now applies for non-occupied borrowers.  Some other notes:

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arkovich_law-narrowThe United States Trustee Program (USTP) has resumed audits of individual chapter 7 and chapter 13 bankruptcy cases under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on March 13 ,2023.

What does this mean if your case is selected?

The USTP contracts with independent firms, utilizing certified public accountants and independent licensed public accounts, to perform audits of individual chapter 7 and chapter 13 cases randomly selected by the USTP. The purpose of the audit is to determine the accuracy, veracity, and completeness of petitions, schedules, and other information required to be provided by the debtor under sections 521

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arkovich_law-narrowA bankruptcy claims trading platform called Xclaim just closed a $7 million fund raising round after adding a focus toward crypto claims.

If you have funds stuck in one of several centralized crypto related companies which filed bankruptcy last year, this may be of interest to you.  I have no recommendation of this firm and have never used it:

  • Genesis – up to 52.5%
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arkovich_law-narrow“It is now time”, states Judge Klein who is charting a path for discharging student loans without being reversed.  For years, bankruptcy judges were wary of ruling in favor of debtors who asked for a discharge of federal student loan debt.  In part, because those Judges knew their rulings would be appealed by either the Department of Education, or ECMC (guarantor litigator for the older FFEL loans).  Now it’s different.

In an opinion just out on April 5 (Love v U.S. Dep’t of Education, Fedloan Servicing, Nelnet; Adv. 21-02045-C), Judge Klein decried the “widespread belief that student loans are virtually impossible to discharge in bankruptcy.”  Now there is an attestation process, whereby a debtor can use factors like:

  • School closure
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One of the little known facts in a Chapter 13 bankruptcy, is that someone can repay a vehicle loan using the Till rate of interest rather than contract rate, as well as value the vehicle at it’s current market value.  That can be important if the vehicle is “underwater” and more is owed than what it is actually worth.

But what exactly is a Till Rate?  And why has it been going up over the past couple years?  Do we expect it to drop back down?  After all, it was incredibly low for so many years.

The Till Rate, or Trustee rate, is a presumptive interest rate used in chapter 13 cases paying off secured debts over the life of the Chapter 13 Plan. The rate takes its name from the  Supreme Court case Till v. SCS Credit Corp., which affirmed the notion that interest in chapter 13 was the combination of a risk factor and the prime rate.  The Till rate is calculated from the Wall Street Journal “Prime” rate, plus 1.5.

03/23/2023 9.50%
02/02/2023 9.25%
12/15/22 9.00%
11/3/2022 8.50%
9/22/22 7.75%
7/28/22 7.00%
6/16/22 6.25%
5/5/22 5.50%
3/17/22 5.00%
3/17/20 4.75%

There are so many things that can be done in a bankruptcy, whether Chapter 7 or 13.  For instance, did you know that we can even reduce or eliminate federal student loans now with the new DOJ guidance?  We helped teach an all day class on that to our fellow attorneys last week.

Come talk with us if you’d like to know more about how a bankruptcy filing can help dig you out of a hole.

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