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If you have significant debt but have been told that you cannot file a Chapter 13 consumer bankruptcy, now you can file bankruptcy and not risk dismissal by the U.S. Trustees office.  This change occurred because the Bankruptcy Threshold Adjustment and Technical Corrections Act was signed into law yesterday.  Prior to this Act, someone with high debt was forced into a Chapter 11 — which is extraordinarily expensive and time consuming for the average consumer.  A Chapter 13 is much more cost-effective and efficient to reorganize someone’s finances.

While the name of this Act is thoroughly boring, it is very practical and necessary.  This Act fixes a recurring problem that has reared its head more in the past year than ever before.  Student debt has reached such a high number for many borrowers, that it was actually preventing someone from filing bankruptcy to address that student debt, or even to get rid of ordinary household debt or stop a foreclosure.

Now the debt limit for an individual filing a Chapter 13 is $2.75 million and the Act also removes the distinction between secured and unsecured debt.  This new law is temporary and will sunset on June 21, 2024.  So basically, this means that if you wait two years to file, you will NOT receive the benefit of this debt increase and may again, be prohibited from filing bankruptcy.

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On Friday, the Senate passed a bill that would provide relief to thousands who have been trapped in a long battle with the Department of Education after a married couple had the misfortune of consolidating their loans.  While at first blush that may have seemed like a good idea, the joint spousal loan was not eligible for some of the best relief out there including income-driven plans and public service forgiveness.  We’ve tried to correct this problem by filing an adversary action in bankruptcy to obtain a similar result for our clients who were simply told “no” by the Department.  We were successful in doing so, up until the DeVos administration backtracked on us.

The Joint Consolidation Loan Separation (JCLs) Act of 2021 will:

  • Allow borrowers to submit an application to the Department of Education to split the JCL into two separate federal direct loans.
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This week, the parties in Sweet v. Cardona filed a motion with the court that they had reached a settlement in principle to resolve the case. As a quick refresher, this case challenged 1) the Department’s failure to issue timely adjudications on borrower defense claims and 2) the Department’s blanket denials of thousands of borrower defense claims during the DeVos administration.

We will learn more in the coming days about the contents of the settlement, but I have every reason to be optimistic that it will be pretty darn good.  So stay tuned.

In the meantime, if you’ve attended a for-profit school and was defrauded in any way, please file a Borrower Defense to Repayment application here:  https://studentaid.gov/borrower-defense/

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A mortgage servicer called a “furnisher” for purposes of credit reporting is responsible for updates to a borrower’s credit report.  Many times following a foreclosure, there is a limited time for the lender to seek a deficiency judgment.  Here is Florida it is one year.  If a year goes by, and the lender fails to seek a deficiency judgment then it waives the amount it is still owed after the foreclosure sale of a home.

Here’s the good news:  If a lender fails to report a deficiency as having been eliminated, discharged or abolished, it is then reporting inaccurate information.  This inaccurate reporting opens the door to the furnisher’s liability under the federal Fair Credit Reporting Act, 15 U.S.C. Section 1681 et seq., (the “FCRA”) per the Ninth Circuit (California) in a recent case.  Gross v. CitiMortgage, Inc., 20-17160 (9th Cir. May 16, 2022).

This case is being compared to a leading contempt case, where the Supreme Court in Midland Funding  LLC v. Johnson, 137 S.Ct. 1407, (2017) found that a debt collector who filed a proof of claim in a bankruptcy that was obviously barred by the statute of limitations did NOT engage in false, deceptive, misleading, unconscionable, or unfair conduct so there was no violation of the Fair Debt Collection Practices Act.  While this decision involved a different set of circumstances and a different law, it is clear that these two views could be considered as inconsistent.

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I’m happy to say that we are starting to see Navient refund checks coming in!  A client today received a check for $13,795 which represents payments he had made on a Navient private student loan after June 30, 2021.  The remaining balance on these loans were forgiven per the Navient Attorney General settlement.

If you have questions about the Navient AG settlement, please watch and subscribe to our video:  https://www.youtube.com/watch?v=0m5rmBoj8eg

A FAQ is located here as well:  https://navientagsettlement.com/Common-Questions?portalid=0.

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We’ve made the difficult decision to not take any further clients who have requested assistance in filing Borrower Defense to Repayment applications.  Importantly, it is NOT because the program itself won’t result in possible full forgiveness, we still expect that for many borrowers, but it is taking a longgg time.  If you have filed a BDTR application, go here and click Manage my Application to find any updates on its processing:  https://studentaid.gov/borrower-defense/.

We’ll still be doing all of our other student loan stuff, just not the BDTR applications.

Mostly our decision to not offer assistance in filing BDTR applications is because the Department of Education’s procedures have tied our hands.  We can no longer file the applications online like we used to be able to do.  Even reviewing the PDF draft applications hasn’t been working well because the application itself when forwarded by the client to our office does not always convey the information to view, many of the text boxes are blank unless and until the application form itself is revised per Adobe to correctly retain the data.  It took our IT company some time to figure that out and only the Department of Education can modify their application.

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Life Isn’t Meant to be Lived Paycheck to Paycheck

I know there’s been lots of press about the 8.5% inflation rate that was announced this week.

I also know that many people don’t believe that number.  Why not?

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Our in person student loan presentation went well this week at the annual Alexander L. Paskay Memorial Bankruptcy Seminar  – hopefully, our efforts to spread the word about student loan debt relief is getting to the masses!

The absolute easiest way to check for updates is our Student Loan Sidebar offered in the quarterly column of a bankruptcy attorney publication called the Cramdown which appears in the right hand column of our home page on christiearkovich.com OR better yet, our Youtube Channel “Student Loan Sidebar” found here.  The Spring edition was just uploaded today!  Please subscribe so we can continue offering free information about how to reduce student loans.  Our techniques are working and our extremely favorable reviews show this!!

We expect an update on the May 1 payment restart date any day now — we are guessing that it may be moved to the end of the year, and something will be done about the potential tax bomb at the end of an Income Driven Plan.  There are signs in the proposed budget that came out this week that leads us to believe that those taxes may be in line for a waiver – much like the waiver in place now for any student loan settlements that occur before December 31, 2025.  Remember, that only applies if the settlement (including payments) is concluded by the end of 2025 so if you have private student loans, the time to get them settled is now so there is enough time to actually get them paid off under that settlement in the next 3.5 years.

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Whoo hoo, just in time to save one of our Chapter 13s with crazy high student loan balances and an ED POC that was gonna torpedo us.  Now we are going to be able to file our adversary to hopefully drastically reduce the private student debt and make our client’s life much better!
Changes relevant to consumer bankruptcy attorneys starting April 1 include:
  • 11 U.S.C. § 109(e) (debt limits for chapter 13):The unsecured debt cap has increased from $419,275 to $465,275.
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After being cancelled for last couple years, the Alexander L. Paskay Bankruptcy Seminar is a GO for March 19-21, 2022 at the Tampa Marriott Water Street in Tampa.

I am honored to have been asked to present on a panel regarding student loan strategies, tax issues and dealing with the Chapter 7 trustee.  This will also include discussion of the discharge injunction and and update on Taggart.

For our bankruptcy colleagues, I hope to see you there!!  This will be the first in person event for many of us, and vax cards or negative tests are being required for attendees to ensure a safe experience.

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