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It can be risky to reaffirm a mortgage in a bankruptcy, particularly when the property is underwater (worth less than what is owed), or you may need to move and sell quickly.  A reaffirmation agreement puts you back on the hook to pay for the full amount of the mortgage, including interest, taxes, insurance, foreclosure fees and costs after a bankruptcy, if you elect to keep the home.  Why would someone ever sign one of these?  Well, most mortgage companies do not report payments being made on a non-reaffirmed mortgage.  So how do you avoid the risk, while at the same time, benefit from timely payments being made which rebuilds credit?

SELF REPORTING MORTGAGE PAYMENTS

WHEN YOUR LOAN WAS NOT REAFFIRMED

The bankruptcy code does not require that you reaffirm, or sign a court order agreeing to continue the payments on your mortgage. But unless you are surrendering your house, you will want to continue paying because the house will eventually be foreclosed if you do not.

Mortgage companies will not report your payments to the three major credit reporting agencies (Experian, TransUnion, and Equifax) if you have not reaffirmed. It is possible, nonetheless, to still get your payment history included in your credit report, as follows:

  1. Request a payment history from the mortgage company. (The mortgage company is required by law to provide one every year free of charge.) There is no special form – just call your mortgage company and be persistent.
  2. File a dispute with the three credit reporting agencies, attaching a copy of the payment history.
  3. The credit reporting agency is required to verify the accuracy of the debt with the mortgage company within 30 days.
  4. At that point, the mortgage company can either:
  • Remain silent – the credit reporting agency must accept the information you provided; or
  • Accurately report information. The mortgage company would be hard pressed to explain how a payment history it prepared was inaccurate.
  • Repeat this process on a regular basis, to update the information.

Additionally, you should keep the payment history, since that can be provided to anyone you’re applying to for new credit.
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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgThere a few unanswered questions regarding the roll out of federal student loan borrower protections provided by the CARES Act.

The Student Borrower Protection Center and the National Consumer Law Center have combined forces and raised certain concerns to Secretary DeVos in a letter today that can be found here.

Clarifications are being made to the Paycheck Protection Program which have encouraged, in particular large cap, public companies, with access to other funds, to return funds that were meant for small business.  Perhaps the attached recommended consumer guidance will encourage the Department of Education to clarify and extend borrower protections where necessary as well.

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I’ve written quite a bit recently about the Department of Education’s recent announcements to halt the accrual of interest and collections of certain federal loans.  Direct Loans and some FFEL loans are automatically being placed in forbearance until September 30, 2020.

Importantly, these COVID-19 related protections do not apply to all loans – private loans, Perkins Loans and commercially held FFEL loans will continue to accrue interest, and they can continue to collect.

But there are still debt collection limitations that apply particularly during this time of national emergency:

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As an attorney, if I accept representation for two clients but I only zealously advocate for one while throwing the other to the wolves, I would be subjected to discipline by the Florida Bar and likely sued.  Banks better hope when they accepted PPP applications, that they reviewed them fairly.

Despite the meme above, my beef is with the big banks on this one!

 

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgFalse information provided by federal student loan servicers applying the CARES Act may also lead to liability in light of a recent case allowing public service employees to seek PSLF relief after being misinformed about the applicability of the law.

A recent Forbes article noted our PSLF case’s potential impact.  “Student loan borrowers have scored another victory against a student loan servicer for unfair and deceptive practices. And the impact of this decision could be far-reaching.”

Lawson-Ross et al vs. Great Lakes Higher Education Corp., No. 18-14490 (11th Cir. 2020) involved two of our PSLF clients.  In this three year long battle, we worked with class and appellate counsel (attorneys Katherine Yanes, Dan Zibel, Brian Shrader and Gus Centrone) who did a fantastic job!  This should be helpful for any state consumer law violation – the Higher Educ Act does not preempt state consumer FCCPA/FDCPA claims for affirmative misrepresentations.  This was not a failure to disclose case.  It revolved around a servicer accused of giving false information.  See pages 18-19 for detailed analysis of the difference of a servicer providing false information when asked about a forgiveness program and a failure to disclose.

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Despite early applications and full financial documentation (sometimes submitted within hours of portals opening), some banks, who will remain nameless for now, dropped the ball and did not timely process PPP applications on behalf of scores of small businesses who had been loyal customers for years.  I am one of these such businesses in Tampa Bay, Florida.

So I’m beginning to ask myself, what did these banks who failed their customers have to gain – while they strung the little guys along?  If I had known my application would sit untouched for two weeks, I could have gone elsewhere, I have several banking relationships.  But I chose to stay with the one application I filed with my primary banker.  I counted on that bank.  I was let down.  Many more share my story.

I will soon have to draw down my line of credit at approximately 8% interest.  That money goes to my bank – those funds will help their bottom line.  These banks have profited by “dropping the ball”.  Many small businesses will fail.  Local businesses.  Mom and pops.  Despite filing an early application with a trusted banker.

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Many small businesses will take advantage of Paycheck Protection Program (PPP) and other measures to keep afloat for the next couple months.  These plans hopefully will result in forgiveness of any funds used for payroll, rent and utilities.  But as we all knows, running a small business involves lots of other expenses.  Many businesses will draw down lines of credit while credit is still available.  Seeking forbearances for various business expenses may also be possible to conserve cash.  Owners may not take paychecks for awhile.

But eventually, shelter in place orders will subside.  What then?  Revenues won’t be what the once were for quite some time:  at least for the entertainment, travel and restaurant industry.  Many other industries too I’m sure.

How will these businesses remain in business?  Fortunately, the new Subchapter V Small Business bankruptcy rules went into effect in mid-February.  These weren’t caused by COVID-19, but the timing couldn’t have been better.  The debt cap was raised by the CARES Act from $2.7 million to $7.5 million for eligibility.  These small business Chapter 11 cases are streamlined and less expensive.  They are a means to reduce debt and the cost of carrying that debt — while remaining in business!

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgYou’ve probably heard by now that the CARES Act provides for a suspension of payments and collections, and waiver of interest for six months.  However, not all loans are covered.

Importantly, 20% of federal student loan borrowers are not covered by the CARES Act.

  • Covered loans do not include FFEL loans that are commercially owned, Perkins loans and Private loans.
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Our firm used to do a lot of employee rights cases, but we reduced that area of practice when we elected to focus on foreclosure defense and student loan work.  Recently though, we have had a few clients with questions about what happens to their income if they or an immediate family member should get sick with COVID-19.  One of our attorneys suggested I post the following to help answer these questions:

WHAT ARE YOUR RIGHTS UNDER THE FAMILY FIRST CORONAVIRUS RESPONSE ACT (FFCRA)?

The Act requires certain employers to provide their employees with paid sick leave and expanded family and medical leave for specified reasons relating to COVID-19.  These provisions are applicable between April 1, 2020, through December 31, 2020.

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penny-hoarder
We were interviewed by the Penny Hoarder this week in their story “How You Could Get a Temporary Break from Student Loans Due to COVID-19.”

You should also check out our recent blog post “Watch Out for These Pitfalls that may come with Suspended Federal Student Loan Interest.”

Under the right circumstances, a six month forbearance with non-accrual of interest will help a lot of folks.  But beware that not everyone will qualify for this and their credit could be impaired if payments are not made.  An income driven plan starting right now could be a better option for those with FFEL loans!  You can also have your current income driven plan recalculated if your income or hours have dropped recently.

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