Articles Posted in Student loans

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgFlorida is a state that allows professional licenses to be suspended for non-payment of federal student loans.  We had a client who came to us last month after having her LPN license suspended.  This is even worse than a garnishment.  Rather than 15% of her wages being garnished, which is difficult enough for most clients, she’s receiving NO pay.  And her job could be at risk if she is replaced.

It took 2-3 weeks, but we fixed her federal student loan default, got her onto an affordable income based plan and lifted the suspension order.  Fortunately, our client was able to retain her job.

Don’t wait to cure federal student loan defaults!

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgToday, a client elected to have us settle her defaulted federal student loans in full by payment from her 401k.  While we normally don’t recommend using protected 401k monies to settle debt, this particular client makes too much for debt forgiveness.  A settlement now will likely result in 10% reduction in principal and waiver of the 25% collection fees since she is in default.

While you normally cannot settle federal student loans, there is an opportunity to do so when the loans are in default and a hardship exists.  So by paying them now from her 401k, she’ll likely see a 1/3 reduction in her loan balance.  Put another way, that’s a 35% return!

The average interest rate on federal student loans is also 6.8%.  Most people are not getting those rates with CDs, money markets, stocks and bonds.  So paying off the federal loans often makes sense from this perspective as well.

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgAn Iowa appellate court ruled recently that a Income Driven Plan with a zero payment “does not ameliorate the undue hardship”.

In In re Martin, out of the Northern District in Iowa (8th Circuit) the lender argued that the debtor was not entitled to discharge the loans because she would qualify for an income-based repayment program, or IBRP, where she would qualify for a zero payment.  In 20 or 25 years, whatever is left on the loans would be forgiven, but the forgiveness could be considered taxable income.

In 20 or 25 years, the debtor would be 70 or 75 years old, and whatever savings she amassed would be consumed by the maturing tax liability.  In other words, Judge Collins said, the “tax liability could wipe out all of debtor’s assets not as she is approaching retirement, but as she is in the midst of it.”

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Initially, twenty some years ago, I worked on the side of the student loan companies.  Whenever someone in the State of Florida sought to discharge federal student loan debt in bankruptcy, I was often trial counsel for the student loan company.  Our clients ranged from Sallie Mae, ECMC, TERI and USA Funds.  Our track record was excellent – I recall losing only one trial down in Miami.  It wasn’t really due to any great lawyering skills, it simply  was very difficult to discharge student loans in bankruptcy.  I traveled around the state handling trials and appeals in Tampa, Orlando, Jacksonville, Fort Myers and even Miami area – it may have been Fort Lauderdale – all I remember is it was a long way down there!

Why did I do that type of work?  Well, I felt grateful for my own loans and believed in the system and wanted to help to make sure it was around for future borrowers.  I would not be a lawyer today if it weren’t for the student loan system.

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But you could say I’ve seen the light since then.  Today, I work for borrowers.  Nowadays, it’s nearly impossible for the vast majority of student borrowers to actually pay off their debt.  When I graduated back in 1992, I owed 45k and my first job right out of law school paid 40k – roughly a 1 to 1 ratio.  Fortunately, it was never hard for me to pay off that debt.  But nowadays, I’ll see 3 to 1 ratios all the time, i.e. someone owing 90k in loans, but only making 30k.

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgSomeone asked us recently:  where does someone start to make sense of it all – when mounting student loans are crushing them and they don’t know what to do.

  • That’s exactly where our clients stand, there is so much information out there, some accurate, some not so much, and it’s hard to tell what even applies to your specific loans.
  • Then we have student loan servicers who vary in their training of their customer service reps – you’ll get 3-4 different answers when you call for example.
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school-bus-driver
Desperate mother, teacher, bus driver and student loan captive for life.

This is the actual signature line of a client who we are helping with her federal student loans.

The short version of her story:  she paid 10 years of consecutive and timely payments only to be told that she had to start all over again with ANOTHER 10 years of payments simply because she had the wrong loan type — and NO ONE at her servicer ever told her this.

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgThe New York Times today in an article titled “Education Department Unwinds Unit Investigating Fraud at For-Profits” shows a department charged with investigations of schools such as DeVry, Corinthian, Everest, ITT, IADT etc., has only three employees now that it has all but been shut down. In addition, the unit’s members are now required to obtain special approval to contact any outside groups including the CFPB, state attorneys general, etc. who had been partners in identifying and prosecuting cases.  This alone has halted any investigative work by the three remaining employees.   So bottom line, for-profit schools are free to engage in predatory activities once again per the DOE.

We warned our clients a few months back when an Inspector General’s report came out in December 2017 that highlighted the reduction of staff of the new direction that that the DOE was taking.

We reiterate now while it is still possible to file Borrower Defense to Repayment applications for fraud by for-profit schools, a better approach may be to enroll in an income based plan with debt forgiveness – but there are several different programs and it is important to choose the right one for best results.  However, they have “staying power” and the current administration is in favor of Income Driven Plans.

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Reports have been surfacing that the Department of Education is kicking borrowers out of Income Driven Plans when they file bankruptcy.  It makes no difference if they are in a Chapter 7 or 13.  It also doesn’t matter if the debtor is current in their payments.  The National Association of Consumer Bankruptcy Attorneys (NACBA) views this as a direct violation of 11 U.S.C. 525 (Protection against Discriminatory Treatment).

There are ways to counter this and remain in an Income Driven Plan to continue progress toward debt forgiveness including Public Service Forgiveness.  A new development is spreading across the country to file what is called the Buchannan provisions in a Chapter 13 Plan.  We have recently adopted this in Tampa, Florida.

On January 5, 2018, Trustee John Waage and Judge Catherine McEwen agreed to the following Non-Conforming language in In re Hyland, 8-17-bk-01564-CPM that now allows for Income Driven Repayment Plans concurrently with a Chapter 13.

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If you are in default on a federal student loan, one option to cure the default is to enter into a 9 or 10 month rehab plan to cure the default.  This can be a paperwork nightmare, with the result ending in wage garnishment if you are not careful.  Once a garnishment starts, it cannot be stopped for five months.  That means that you have to pay a negotiated rehab payment for nine months during which you’ll have 10 paychecks garnished.  Most people’s finances cannot suffer that.

So it’s important to do this right.  Sometimes that doesn’t mean doing it yourself if this is a process you are unfamiliar with.  See what a rep for ACSI (Automated Collections Services, Inc.) said about working with our firm recently.  John advised: “he really appreciated how detailed the firm was with advising them of our client’s situation and how he appreciated that we submitted the supporting documentation straight away. He noted that if other firms implemented a system like ours, it would make his job that much easier. He’s been dealing with student loans and collections for 30 years now and has never come across a firm that has been as thorough with addressing a situation and helping to swiftly rectify it.”

Since this conversation, John has drafted and sent over the garnishment release notice to our client’s employer and had one of his associates follow up with us to get our client on an affordable repayment agreement.  This client approved for a $5.00 rehabilitation plan.

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Ignoring your debtor’s federal student loans in their Chapter 13 bankruptcy can have catastrophic circumstances.  While fixing vehicle, credit card and mortgage debt, you may have inadvertently allowed a debtor’s $100,000 federal student loan to balloon into nearly $150,000 by doing nothing.  This is because the standard procedure of the Department of Education is to place these loans into forbearance during a bankruptcy.  However, now in Tampa, we are permitted to use the following Non-Conforming Provision in Chapter 13 Plans to permit our clients to enroll in Income Driven Plans and even Public Service Loan Forgiveness whenever eligible.

On January 5, 2018, Trustee John Waage and Judge Catherine McEwen agreed to the following Non-Conforming language in our client’s case, In re Hyland, 8-17-bk-01564-CPM that now allows for Income Driven Repayment Plans concurrently with a Chapter 13.

The permitted language:

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