Want to get out of debt by the end of the year? It’s possible. Really! How, you ask?
File Chapter 7. These bankruptcy cases only last three months – 90 days.
Wouldn’t it be nice to stop trying to juggle everything? Feeling overwhelmed with your finances?
This month, lots of debt collectors are filing cases. You may have been served recently. First, don’t ignore it. If you ignore a summons, it’s easy for the debt collector to get a judgment and start to garnish your wages or bank accounts. Don’t do it. We call that “low hanging fruit”. They like when you default. It’s an automatic win for them.
There are many possible defenses. Perhaps their paperwork is bad. Perhaps they tried to collect too aggressively and violated our consumer laws. Maybe they waited too long to sue and the statute of limitations ran. Something. Anything.
You can also settle. A settlement before they win. After they win, they no longer want to settle on terms that you may find attractive.
Believe it or not, there are still many people who are in default on their federal student loans. The Fresh Start initiative to allow someone to cure their federal student loan default ends September 30. The end of this month. If you are still in default after that, you’ll face collections actions for these federal loans and it’s not pretty. Wage garnishments – federal – so no state exemption are available. Tax refund seizure. Earned income tax credits gone. Social Security offsets. Poor credit scores.
Why not cure now? It’s free. Your credit report is cleared of the delinquencies. You get IDR credit for the past 4.5 years if you went into default at the beginning of Covid for instance. No need to consolidate or rehab.
We used to complain that there were so few ways to cure a federal student loan default. I even called our one time ability to consolidate to Direct loans, or rehab a loan – get out of jail cards. If we ran into someone who had done both already, sometimes the only way to cure a default was to file a Chapter 13 bankruptcy to have a plan to catch up the past due payments. Imagine having to make more than one student loan payment per month. It worked, but it wasn’t always pretty.
So you may have heard by now that all consolidation applications are being processed by Aidvantage. The online system is completely frozen. And that most people are being placed into forbearance while the system is frozen. Just last week, the Department of Ed asked one of the courts for clarification of its injunction order and was told that no clarification would be forthcoming. So we wait. The U.S. Supreme Court will have to rule on all this.
It’s important to still move forward however. If SAVE survives the court challenges, you want to have your Parent Plus loans in place ready to be placed into SAVE. Even if SAVE doesn’t survive, perhaps one of the other IDR plans is better than ICR. How do you move forward with the online system stuck, and only one servicer processing paper consolidation applications?
The key is to use snail mail – send half to Aidvantage, wait 45 days until the consolidation is done. Then send the second half to Aidvantage to consolidate using snail mail. Wait 45 days. Then recombine all the Parent Plus loans in a final consolidation application sent to – you guessed it – Aidvantage.
Some details about the current status of PSLF – Public Service Loan Forgiveness:
Right now, there is a lot of confusion regarding our federal student loan program. There are multiple federal cases and several injunctions that have pretty much frozen federal student loans.
A couple things are still working. Total and Permanent Disability discharges of federal student loans, and filing bankruptcy on them.
We’ve written a summary published in the quarterly Cramdown publication for our readers which are primarily bankruptcy attorneys and judges in the Middle District of Florida – located here. We discuss what’s working now in bankruptcy and how to obtain a discharge or IDR credit for Plan payments. Please take a look and if this helps you – you can do this now and not wait for the elections or U.S. Supreme Court rulings.
Here’s a review posted recently about our student loan videos:
- I wish the views on this channel were much higher. Christie is both thorough and concise. It’s the best channel on YouTube regarding student loans.
I know that it’s more confusing than normal now with all the litigation and holds put on federal student loans right now. Processing of IDRs have been slowed considerably – and while you wait, your loans are placed into forbearance. This forbearance may ultimately count toward IDR but it’s a mixed bag whether it will count if you ask now.
Bankruptcy is all about full disclosure. Tell the trustee or court whatever assets you have and in return you receive a full discharge of most debt. The reason I say most debt is because there are rules re: IRS debt, student loan debt and secured debt such as vehicles, 401k loans, etc.
One thing that is often overlooked is potential consumer claims that a debtor may have in bankruptcy. Things like claims against credit furnishers, debt collectors etc. Not only should you disclose these potential claims in order to receive the discharge in bankruptcy, but by failing to disclose the claims you will face hurdles in pursuing them later.
Often a bankruptcy trustee doesn’t want to pursue the claim and simply abandons it. Then you are free to pursue either during the bankruptcy or thereafter. You also may have unused exemptions to protect such a claim in case you want to raise it later.
An email went out to federal student loan borrowers today that was rather vague. It basically said to stay tuned. None of us know exactly what the Biden administration is up too, other than confusing all of us, but it’s possible that they could be talking about this:
A new student loan forgiveness plan that will be geared toward four broad categories of borrowers:
PAYE and ICR for non-Parent Plus borrowers was supposed to be phased out under the SAVE regulations as of July 1. But those regulations are now blocked following the 8th Circuit’s order. So PAYE (and ICR) are available for borrowers to enroll, at least for now. But, the online IDR app is down for the foreseeable future; borrowers can apply on paper, but no IDR apps are being processed right now and borrowers should expect very long processing delays. Details here: https://www.ed.gov/save.
So if you’re having problems getting your IDR approved, this is why. In the meantime, your loans will be placed into forbearance (which doesn’t count for IDR or PSLF).
The IDR audit or recount is still underway – but will likely be pushed back again until sometime this fall. My guess is that the Biden administration would want that done before the elections if at all possible.
Reboot Your Life: Tampa Student Loan and Bankruptcy Attorney Blog