Someone 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.
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.
The 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.
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.
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.
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:
One lesser discussed provision of the new tax bill passed at the end of 2017 provides great news for student loan borrowers. Borrowers who have their loans canceled due to death or disability are no longer taxed for the forgiveness. This also applies to those parents who have taken out Parent Plus loans for their children and their child dies (there is no forgiveness of a Parent Plus loan if the child becomes disabled, it is the parent who must be disabled). The new law takes effect January 1, 2018. Those with loans discharged prior to 2018 are still potentially taxable. However, those with disability discharges should be able to argue that the loan is not actually discharged for tax purposes until the three-year monitoring period has ended – this is also when the 1099-C is sent.
This tax relief for student loan borrowers is set to expire at the end of 2025.
There are a ton of people who believed their student loans were discharged when they loans were simply listed in their bankruptcy. It may have been years before the private student loan companies started to communicate with the borrowers to collect this debt which added to that impression.
As it turns out, there may be a way to argue this after all – in instances involving private loans. Private student loan lenders have to prove their loans are in fact “qualified education loans” and meet other criteria in order to be exempt from a general discharge. We are now filing cases where we do not believe the private lenders can meet this burden and the loans are and should have been considered discharged all along. This opens the lender and servicer to a potential FDCPA and FCCPA case if it has tried to collect on previously discharged debt. Moreover, it also opens up the lender to potential claims to refund monies paid toward these loans since discharge.
An easy way around this would have been for the private student loan lenders to have filed their own adversary actions in the debtor’s bankruptcy to obtain a declaratory judgment that its loans were excepted from the general discharge. However, this was never done.
If you run into trouble paying your student loan, chances are you’ve been told to “just go on forbearance.” Here are five reasons that is a terrible idea in many cases:
Are you expecting a large tax refund this year?
If so, and you have had some financial difficulties this year, do NOT file your tax return if you are in default on your federal student loans OR about to file bankruptcy.
Instead, some pre-planning is in order. For federal students loans, cure the default before you file your taxes. File an extension if you must to gain some additional time.
Reboot Your Life: Tampa Student Loan and Bankruptcy Attorney Blog