Posts made in July, 2015

What May The Department Of Education’s Recent Decision Mean For Your Student Loans In Bankruptcy?

Student loans — both federal and private — have been nearly entirely prohibited from being discharged in bankruptcy for decades. This can effectively prevent those with student loan debt from filing bankruptcy, and if these loans aren’t eligible for discharge or income-based payments, they can pose a heavy obligation for those with other debts or tight budgets. However, a recent letter released by the U.S. Department of Education (DOE) may provide some relief for those who may find themselves unable to ever fully repay their student loans. If you’re considering filing bankruptcy to rid yourself of other debts, but are concerned that you’ll still be required to pay your student loans, you may want to learn how this letter can potentially affect you.

What did the Department of Education change about student loan discharge in bankruptcy?

The DOE recently released a letter intended to clarify the “undue hardship” standard for discharging student loans in bankruptcy. Although for most borrowers it can be nearly impossible to have student loans discharged through bankruptcy, in certain extreme cases where repayment of the loan would cause the borrower undue hardship, this prohibition may be waived. Some examples include severe disability that would prevent the debtor from ever earning enough to repay the loans, or situations in which the student loans were obtained under false pretenses.

The DOE’s letter expanded the definition of “undue hardship” and clarified that the DOE would not fight back against any bankruptcy petition in which the borrower alleged undue hardship if the cost for the DOE to litigate this matter was more than one third of the total amount of student loan debt at issue. This means that if you owe relatively little on your student loans, it may be much easier for you to allege that repayment of the loans would cause you undue hardship, as any attempt by the DOE to show that you have the ability to repay these loans would likely cost thousands of dollars in attorney fees and other costs.

Will this mean you can discharge your student loans by filing bankruptcy?

This letter only sets out guidelines for the DOE — it doesn’t change existing law. And bankruptcy judges are still required to approve the final settlement of your bankruptcy claim, even if the DOE doesn’t oppose the discharge of your student loans in bankruptcy. If the bankruptcy judge feels you’re taking advantage of the bankruptcy process, the facts that make up your claim of undue hardship aren’t compelling enough, or you earn enough to repay the loans on an extended timetable, your claim may be denied, and you may still be unable to discharge your student loans by filing bankruptcy.

However, this letter does provide hope to students who feel they will be unable to ever fully repay their student loans, or whose balances grow faster than payments can be made due to high interest rates. If you’ve done your best to pay down your student loans but have been unsuccessful, or have suffered a debilitating injury that has hampered your earning potential, it may be worthwhile to explore your options with a bankruptcy attorney to determine whether it’s likely you’ll be able to discharge your student loan.

While consulting with a bankruptcy attorney, you may also want to estimate a value of the litigation on your claim. If the estimated cost for the DOE to attack your claim of undue hardship is close to (or higher than) a third of your total student loan balance, you may find it worth your while to allege undue hardship. And if you have more than one student loan and it’s possible that the cost to litigate your claim would be more than a third of one of these loans, you could seek to discharge only this loan and reaffirm the other one.

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4 Steps To Handling Automatic Stay Violations During Chapter 13 Bankruptcy

While going through the process of paying down debts controlled by your chapter 13 bankruptcy proceedings, all associated creditors must cease collection actions. The order for an automatic stay, as given by the court, prohibits collection phone calls and letters, service disconnection and eviction. Creditors cannot attempt to collect through wage garnishment or seizure of your assets.

Instead, creditors must wait for you to fulfill the court ordered payment plan to receive their funds. Once you default, however, all bets are off and creditors may resume collection activities like normal. If you receive any collection notices or calls while under the protection of the automatic stay order, you need to promptly address the creditor using the following steps.

Step 1: Find Pertinent Bankruptcy Information

You will need to gather information, including your case number and filing date, to verify the bankruptcy proceedings with the creditor. Although all named creditors on the bankruptcy were issued notification, the associated forms may be misplaced or discarded accidentally. Double check your information accuracy, as any discrepancies can give creditors leeway with the courts if you end up needing to file a lawsuit.

Step 2: Copy All Court Notices

With your bankruptcy ruling, you may have received a letter from the judge detailing the payment plan and requirements associated with your case. You will need to provide the creditor in question with a copy of that letter to confirm the automatic stay ruling is in effect. Make sure the letter includes the issue and end dates in full. Mark your name, case number and current date on the top of the copy you plan to send out. Make sure to send out the copies and your notification letter within a day or two of preparing the documents.

Step 3: Write A Detailed Notification Letter

The certified letter needs to officially notify the creditor about the chapter 13 bankruptcy ruling and automatic stay order. The letter should include your full name, creditor assigned account number, bankruptcy case number and current date.

Use a professional tone throughout the entire letter. The notification should calmly and clearly notify or remind the creditor that your property and funds remain protected under court order, especially when facing garnishment or property seizure attempts. Make three copies of this letter; one for your files, one to send to your lawyer and another for the creditor.

Step 4: Send Documents To Creditors In Violation

Send the lawyer and creditor’s copies separately by certified mail on the same day. Indicate that you would like to receive return receipts to have signed proof of acceptance on a specific day. Make several copies of the return receipts for your lawyer and personal files. You can also scan the receipts into your computer in case you misplace the physical copy.

If the creditors continue any other collection actions after that date, you may be able to sue for damages. Furthermore, any evictions or collection of your property may be reversed by the court if you have proof of prior notification. As creditors move to a different collection company, you may receive additional collection letters or calls. If this happens, notify your lawyer immediately to handle the situation through the court system.  

Contact Your Bankruptcy Attorney

If the creditors in violation of the automatic stay order do not immediately cease and desist upon receiving proper notice, your lawyer may need to file a lawsuit with the assigned court. Depending on the creditor’s actions, the courts may order that party to pay legal fees and other damages. Your lawyer must prove the creditor continued collection actions after receiving your notices. Therefore, it is vital that you always keep all certified mail receipts and maintain good records regarding creditor phone calls and letters while going through chapter 13 bankruptcy. Click here for info about finding a bankruptcy attorney.

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July 2015
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