Yesterday I was back for a full day after being sick with the flu for a few days.  The day was surprisingly productive.  Many people have asked me what we can do for people with student loans.  This question is often combined with a statement that they thought nothing could be done.

To the contrary, here are the results for our Tampa Bay clients just yesterday.  First I received an email from a client who thanked our law firm for greatly improving the quality of his life.  You see when this client initially contacted us six months ago he owed over six figures in private student loans and could see no end in sight – he was in his late 50s.  The student loan companies were always asking him to make payments for more than he could afford.  He was single, healthy and able to work making 40k a year.  Despite this, we put him in a bankruptcy and filed an adversary proceeding asserting that he was due a partial discharge due to the non-affordability of the private student loans among other things.  Within a few months, we had negotiated settlements with both servicers of his student loans which included substantial principal  (50% or greater) and interest rate reductions (to 0-2%) and an affordable monthly payment plan.

Another client returned a signed rehab agreement to us today where she accepted the $10 a month payment plan we had negotiated for her to bring her federal loans current and remove the default on her credit report.  She had narrowly avoided garnishment by hiring us just in time.  When her rehab is done, we’ll put her into a specific income based debt forgiveness plan that takes into account her loan types,  marital status and type of employment for the best result.

 Unfortunately, student loan borrowers in default on federal loans are experiencing tax intercepts around this time of year, sometimes for the first time ever.  Some tips:  1) if we can cure the default before your taxes are filed and the intercept occurs, we can stop it from ever happening; 2) if you can’t cure the default, there is a 20 day period to request a hearing, but ultimately unless you are completely destitute they will be able to keep your tax refund.  We recommend that if you know this is coming, delay filing your tax return and request an extension until you can cure the default.

Curing a default in federal student loans does not mean you have to bring it current and pay all missed payments.  Instead what we do for clients is negotiate a rehabilitation plan or sometimes a consolidation of certain loans to cure the default.  Often the payments to rehab a loan are as little as $5 and it does take into account your income and expenses.  We have a very thorough budget we like to use in negotiations so the debt collector can see what your true disposable income is.

You can also stop a tax intercept by filing bankruptcy.  If you have have enough personal property exemptions, you would be able to keep a portion or the entire tax refund.  Filing a bankruptcy petition before the offset activates causes the automatic stay to stop all collections even those initiated by the federal government.

While not a Florida case, the Fourth Circuit ruled today that the arbitration provision of Western Sky Payday Loans is unenforceable.  This may be a sign of expanding consumer protections in the future, although it is very early to tell.  Mandatory arbitration clauses force a consumer to give up their right to go to court, participate in a class action, pay expensive filing fees of sometimes thousands of dollars, pay an arbitrator $300-$400 a hour (a Judge is free!) as well as other drawbacks.

Quick summary of the highlights:

• No one appears to seriously dispute that Western Sky’s payday loans violated a host of state and federal lending laws. Indeed, a quick glance at Western Sky’s loan agreement suggests that Western Sky was keenly aware of the dubious nature of its trade.