Tag Archives: debtor

Addressing Defaulted Student Loans

It is drilled into our minds from childhood that in order to have a decent future, we must obtain higher education.  What we aren’t told is what that education will end up costing us.  Like the housing boom of years past, we are seeing a large number of loans being handed out to millions of students with little regard as to whether those students will ever be able to pay back the money they’ve borrowed.  Similar to the housing boom, this trend, and the inevitable defaults that will follow are sure to lead to the collapse of the student loan market.  Unfortunately, unlike mortgages, student loan debt is entitled to serious government protection and in the vast majority of cases is not capable of being discharged through a bankruptcy.  So, what if you are one of the many individuals out there whose loans have gone into default status?

The ramifications of defaulting on your student loans can be significant.  First, once you’ve defaulted, this information will be reflected on your credit report and will have a negative impact on your credit score making it difficult to qualify for additional lending to purchase a vehicle, own a home, or continue your education or help finance a child’s education.  Additionally, after defaulting, you may be placed on the federal tax offset list, which means that instead of receiving your tax refund every year, those funds will be sent to your lender.  Finally, once you default, the government may be able to garnish your wages i.e. withhold a portion of your paycheck (up to 15% of your take-home pay) and apply it to your outstanding balance.  Now for the good news, there are things you can do to help you avoid these consequences.

If you have defaulted on a loan, you are ineligible for some programs that have been established to help people who cannot afford their payments i.e. forbearance and deferment; however, you may still have options.  One such option if you have sufficient income and are concerned with having the default removed from your credit report would be to have the loan rehabilitated.  You can request enrollment into a loan rehabilitation program by contacting your guarantor.  In order to rehabilitate your loans, your guarantor will require that you make between 9 and 12 on-time monthly payments.  Once the required payments have been made, your guarantor will send you a rehabilitation agreement for you to sign and return.  After you have returned the completed agreement, your grantor transfers the loan to a new lender and servicer and requests your previous loan holder and consumer reporting agencies to remove the default entry from your credit report.  The loan is then out of default, and your continue making on-time monthly payments to your new servicer.  Please note that it is important for you to stay on top of your payments once your loans have been rehabilitated because loans rehabilitated after August 14, 2008 are no longer eligible to be rehabilitated again in the event of another default.  But what if you can’t afford the requisite payments to get your loan rehabilitated?

For individuals with limited income who want to address their defaulted loans, you may want to try to have your loans consolidated.  Unlike rehabilitation, consolidation will no remove the default record from your credit report, but you also do not need to make up to 12 monthly payments to qualify.  Instead, to consolidate out of default, you must do one of the following: complete a satisfactory repayment arrangement with your current lender (make 3 consecutive payments) or agree to repay the consolidation loan under the income-based or income-contingent repayment plan.  Currently, the primary consolidation lender is the Direct Loan program, but you can consolidate with any lender offering consolidation loans.

It is important to note that loan rehabilitation and consolidation are remedies available for defaulted federal student loans.  If you have private student loans, you will need to contact your lender and see if you can negotiate terms that will allow you to get your loans out of default.  Additionally, there are pros and cons to each option.  For instance, with consolidation you may repay your loans for a longer period of time or accrue and pay greater interest over the long term.  Moreover, loan consolidations cannot be reversed; therefore, it is important that you carefully review your situation as well as the pros and cons of all possible remedies before entering into any program.

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Terminating Utility Service for Failure to Pay Post-Petition Charges Not a Violation of the Stay

One factor that contributes to people filing for relief under the bankruptcy code is past due utility bills.  Upon the filing of a case, the utility company must discontinue its collection attempts on the old debt and continue to provide the Debtor with services; however, this protection is only applicable to the pre-petition portion of the Debtor’s bill.  All charges incurred since the date of filing must be paid if the Debtor does not want his/her service to be discontinued as was the case in In re Weisel (428 BR 185 – Dist. Court, WD Pennsylvania, 2010).

In the Weisel case, the Debtors included a pre-petition debt from Dominion Gas in the amount of $1,203.40.  As is customary with utility providers, upon the filing of the case, Dominion closed the Debtors’ pre-petition account which included all utility charges prior to the date of filing.  Dominion then opened a post-petition account for the Debtors with an account balance of $0. In conjunction with opening the new account, Dominion requested a post-petition deposit of $217.00.  After paying $215.00 towards the requested deposit, Dominion continued to provide service to the Debtors.  Over the next year and a half, Debtors made sporadic payments to Dominion and accumulated a post-petition delinquency of $1,157.09.  After providing Debtors proper notice pursuant to state law, Dominion terminated gas utility service to the Debtors’ residence.  Debtors then filed a motion against Dominion alleging that Dominion violated the Bankruptcy Code by terminating their gas service without obtaining relief from the automatic stay.  The Debtors were unsuccessful.

Section 366(a) of the Bankruptcy Code provides the general rule that a utility may not alter, refuse, or discontinue service to a debtor “solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.”  However, Several courts have permitted termination for failure to make post-petition payments concluding that the use of the word “solely” in § 366(a) implied that a utility may refuse to furnish services on grounds other than the commencement of the bankruptcy case or because of outstanding pre-petition debts.  Specifically, in Begley v. Philadelphia Elect. Co., the court concluded that:

“The restriction on termination in section 366(a) bars only those terminations which issue “solely on the basis” that a debt incurred prior to the bankruptcy order, was not paid when due. Thus, by implication, termination for failure to pay post-petition bills would not seem to be barred by section 366(a) … This reflects an understanding that the utility will be allowed to commence termination procedures once a post-petition payment is missed, despite the prior security or “assurance” deposit.”

Begley v. Philadelphia Elect. Co., 760 F.2d at 49-51.

In conclusion, although bankruptcy can be a useful tool when it comes to past due utility bills, if you wish to continue your service, it is imperative that you make timely payments on any post-petition utility bills.  Therefore, when you are working with your bankruptcy attorney on the income and expense portion of your bankruptcy petition, make sure that there are enough funds to cover your future utilities.  Otherwise, your utility company will exercise its legal right to terminate your service.  For more information, contact the Law Office of Suzanne Szymoniak.

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What Should I Bring to My Bankruptcy Consultation?

You have finally taken that first crucial step and scheduled a consult with a bankruptcy attorney.  Now what?  In order to get the most out of your free consultation, you want to come prepared.  Below is a list of items you will likely want to bring with you to your first meeting:

–  A recent credit report:  This will help your attorney get an overview of how much and what kind of debt you have out there.  Prior to your consult, you can pull a free credit report from http://annualcreditreport.com.  This is a completely free site that does not require that you sign up for a membership in order to view your free report.

–  Six months worth of paystubs:  In order to determine if you can qualify for a Ch. 7 or what disposable income you might have for a Ch. 13, your attorney must complete a means test for you.  In order to do so, s/he needs to know what your income has been for the past six months.  If you have not received paystubs over the past six months, bring any documentation you may have regarding your income sources during that time period.

–  Four years worth of tax returns:  The trustee in your case will want to see that your federal and state taxes have been filed over the last four years.  Additionally, your attorney will need to disclose your annual income for the two years prior to the filing of your case.

–  Documentation regarding recent law suits:  Have you been sued by one of your creditors or another party within the last two years?  If so, make sure you bring a copy of the suit papers for your attorney to review.

– Certificate of Credit Counseling:  If you are serious about filing and believe that you will be doing so in the next six months, you can get a jump on things by completing the required credit counseling course.  You can complete the course and obtain your certificate for a $5 fee at http://www.consumerbankruptcycounseling.info.

–  Completed Client Questionnaire:  Most attorneys will have a questionnaire for you to complete that will allow them to prepare your bankruptcy paperwork.  Some attorneys may have this document available online or can email it to you when you call to set up the initial consult.  It can help to expedite matters to have the paperwork completed prior to your initial meeting; however, if you are on the fence about filing, there is no need to complete the additional paperwork until you know for sure that you wish to proceed.

–  A check:  Although most attorneys will offer a free initial consultation, in order to get the ball rolling on your bankruptcy, the attorney will request some sort of retainer.  Usually, a minimal payment towards the attorney fee for the bankruptcy will be sufficient for the attorney to permit you to begin directing your creditor calls to him/her and for him/her to begin the preparation of the necessary paperwork.  Of course, with regards to a Ch. 7, the attorney will not be able to file until the full attorney and filing fee has been received.  Otherwise, s/he runs the risk of discharging the balance that is owed for his/her services.

For more information regarding bankruptcy or to schedule a free consultation, please contact the Law Office of Suzanne Szymoniak.

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Tips to Help You Avoid Foreclosure

Have you fallen behind on your mortgage and are facing a pending foreclosure?  Before packing your boxes and resigning yourself to finding a new place to live here are a list of options that are available to help you avoid foreclosure?

Nowadays, due to the high unemployment rate, an increasing number of people are facing a possible foreclosure on their property.  But why wait when you can do something about it now?  If you want to keep your home, there are many possibilities that can help you lighten your burden.

Here are 6 tips that can help you avoid foreclosure and its ramifications:

Tip #1: Request a Loan Modification

You can request a loan modification from your lender.  For this, you will be required to submit necessary documentation to a loan officer.  The loan officer will review your request based on financial statements that you submit.  The loan may be modified according to your paying capabilities.  While the request for modification is pending, your lender should not proceed with a foreclosure action; however, large companies are rarely aware of what their different divisions are doing.  Therefore, if you do receive a foreclosure notice, you should contact the foreclosure department immediately and inform them of the pending modification.  Once all of your documentation has been submitted and reviewed, you will be notified by the lender if your loan modification is approve, if not they may suggest a short sale which is another option discussed below.

Tip #2: Refinance to pay off your home loan

Refinancing means you are paying off an existing loan with the proceeds from a new loan.  Homeowners are allowed to file a second loan for the same property for reasons such as paying the first loan, switching between fixed rate and adjustable rate, and extending the term of payments.  In order to decide if this is worthwhile, the savings and interest must be weighed against the fees associated with refinancing.  If there is a pre-payment penalty attached to the existing mortgage (i.e. you are required to pay a penalty for paying off the mortgage early), refinancing becomes less favorable because of the increased cost to the borrower at the time of refinancing.

Another issue you may encounter with refinancing is that if you are facing foreclosure, then you have probably missed several mortgage payments.  This information will be reflected on your credit report, and in the current credit climate, lenders may be unwilling to lend to you; however, if you have the time, it cannot hurt to speak to an experienced loan officer to see if this is a possible option for you.

Tip #3: Enrol in Forbearance and Repayment Plans

Forbearance agreements between lender and borrower reduce or suspend payments for three to twelve months.  During which time, the lender agrees not to pursue foreclosure on the property. The homeowner and the lender agree on a plan that is best for both parties.  Generally, the repayment plan includes the normal monthly payment along with a payment to repay the delinquent amount.

Tip #4: Attempt a Short Sale Rescue

Short sale is a process wherein the lender and the borrower will have an agreement to sell the property at a moderate loss to the borrower.  The lender will handle the short sale which includes the negotiation with the buyers.  But in this scenario, the borrower may be required to pay the loan balance which is called a deficiency.  If for some reason the lender agrees to waive the deficiency payment, the amount waived will most likely be considered taxable income for that year and will have to be reported on your next tax return as such.

Tip #5: Chapter 13 Bankruptcy

If the reason for your mortgage delinquency was due to a loss of income issue that has now been resolved, and you feel that you could pay the mortgage and any delinquency if you could just spread out the payments, a Chapter 13 bankruptcy may be the right option for you.  The filing of a Chapter 13 puts a stop to any pending foreclosure action/sheriff sale and allows you to keep your mortgage current while making monthly payments on the delinquency over a period of three to five years.

Tip #6: Chapter 7 Bankruptcy

If you have decided that you can no longer afford the home and need to walk away, you may want to consider a Chapter 7 bankruptcy.  In Pennsylvania, your lender is allowed to get a judgment against you for any deficiency that may exist after your property is sold at the sheriff sale.  With home values plummeting, this is often the case with foreclosed property.  A Chapter 7 will discharge any mortgage deficiency as well as all of your other unsecured debt.  Another bonus is that the debt that is discharged in a Chapter 7 is not considered taxable income and will not have to be reported on your future tax return.

Foreclosure is one of the biggest nightmare that homeowners are experiencing today.  If you are falling behind on payments, then it is to consider you options.  If you need help deciding what the right option for you is, please contact the Law Office of Suzanne Szymoniak for a free consultation.

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Use Your Tax Return to Finally Get Out of Debt

It’s tax time, and for many people, that means a tax refund.  Many times, people will use their refund to try to get caught up on bills that they have fallen behind on over the past year i.e. credit card debt incurred during the holiday season, past due utility bills, some unexpected medical expenses, or that remaining cap balance.  Unfortunately, for most people, the couple hundred or thousand dollars that they receive from Uncle Sam will not be enough to fix their economic problems.  It may provide them with a short reprieve, but in three to four months, they find themselves back in the same economic crisis.  If you are one of those individuals, one solution may be to use your tax return money to retain an attorney to assist you with a bankruptcy filing.  While this may not be the best solution for everyone, if you find that your tax refund will barely be enough to cover the minimum payments on your credit cards for the next two or three months, then a free consult may be in order.  After all, you don’t want to use your return to pay down the balances only to find that you need to re-use the cards to cover your minimal living expenses.  For more information about bankruptcy or to schedule a free consultation, please contact the Law Office of Suzanne Szymoniak.

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What to Expect at Your 341 Meeting

Many times, when I have a client that wishes to file for a Chapter 7 or Chapter 13 bankruptcy, he/she will have concerns regarding any necessary court appearances.  In a standard case, all debtors are required to make one appearance in front of the trustee of their case.  This “hearing” is called a 341 Meeting of Creditors.  The primary purposes for the “hearing” are to swear that the information that has been provided is true and accurate and to allow any creditors who may want to object to the bankruptcy a chance to be heard.  This is usually a very informal affair.  Typically, the trustee will schedule several 341 Meetings at one time and call each debtor up one by one.  Then the trustee will proceed to have the debtor raise his/her hand and swear to tell the truth, the trustee will confirm the debtor’s identity by reviewing his/her drivers license and social security card, and finally, the trustee will proceed with asking the debtor about a dozen or so questions.  Questions you can anticipate the trustee to ask include:

  • Have you reviewed your bankruptcy petition and schedules and did you sign the documents?
  • Is the information provided in your bankruptcy petition accurate with no errors or omission?
  • Do you own any real estate?
  • How did you determine the value of your real estate?
  • Do you have any pending claims against anyone or potential claims that you could bring against anyone?
  • Does anyone owe you any money?
  • Are you anticipating receiving money from any source other than wages over the next six months?
  • Have you filed you state and federal taxes for the last four years?
  • Have you filed your taxes for this year?
  • Have you received or do you anticipate receiving a tax refund?  If so, how much do you expect to receive?
  • What circumstances caused you to file for bankruptcy?
  • Does anyone here want to enter an appearance in this case?  (This is the trustee’s way of seeing if any creditors have appeared to contest the bankruptcy.  In many cases, no creditors appear and the matter is concluded).

Of course, each case is unique and presents the opportunity for questions above and beyond those listed here; however, as long as you are truthful with your attorney and the information contained in your petition/schedules is accurate, your 341 Meeting should be nothing more than a procedural step necessary to obtain your discharge.

For additional information regarding bankruptcy, please contact the Law Office of Suzanne Szymoniak.

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Debt After Death: Can Your Creditors Haunt Your Loved Ones?

Although an uncomfortable topic for many people, it is never a bad idea to consider what will happen after you pass and to begin planning for it.  For most people, this consideration is limited to what will happen to their assets after they die.  What many people fail to consider is what will happen to their debt, but this requires just as much consideration since your debt can have a significant effect on what assets will remain in your estate for your beneficiaries.

There are several factors that determine what happens to your debt after you die.  The two most important factors to consider are the person or people who applied for the debt and the state in which you live.  In most cases, if you have debt at the time of your death, assets held in your estate will be used to pay off the debt.  If the estate goes through probate, your administrator or executor will look at your assets and debts and determine in what order bills should be paid.  In the case of secured debt, if the assets do not cover the debt, the property may be sold or repossessed to cover it.  Remaining assets will be distributed to heirs based upon your will or state law if you do not have a will.  If there is not enough money in the estate to cover the bills, the credit card companies and other lenders will end up writing off the unpaid debt.  Children, friends, or relatives generally cannot inherit debt, and a creditor usually cannot legally force someone else to pay.

There are two situations where your debt may pass to another person.  If the account was a joint account that was shared with another person such as a spouse or business partner, that person would be legally responsible for paying off the debt along with or instead of your estate.  This applies to anyone who signed the application, but is not applicable to authorized credit card users who had charging privileges but did not apply for the credit originally.  The second situation occurs in states that employ community property laws.  They include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.  Normally, assets accumulated during a marriage are considered joint property in community property states, and in some cases, so are debts; therefore, depending on the laws in each state, the surviving spouse may be responsible for the debt of their deceased partner even if they held a separate account.

After a death it is important that all creditors are notified of the account holder’s passing.  In most cases, the person handling the estate will be responsible for notifying creditors and providing copies of the death certificate. The Credit CARD Act of 2009 requires credit card issuers to stop tacking on fees and penalties during the time the estate is being settled.  Without being notified, the creditors have no way of knowing about a death and will continue to pile on fees and penalties for delinquent payments; thereby further depleting the estate and reducing the inheritance of the beneficiaries.

It is important to note that some of your assets may be protected from your creditors and pass straight to your beneficiaries.  For instances, items such as IRAs, 401(k)s, and insurance, do not go through probate and typically, pass to whomever has been named as a beneficiary.  In many cases, these assets are not considered part of the estate, and depending on the laws in your state, these assets cannot be touched by your creditors.  This is particularly true for 401(k)s since they are governed by federal law which gives them protection from your creditors.  Additionally, many states allow a house to pass from one spouse to another after a death without letting creditors intervene.

This is one area where sitting down with an estate lawyer in your state may be beneficial to ensure your estate is handled properly and that any assets that can be protected from your creditors are in fact protected.  Additionally, for older individuals who are concerned about their credit card debt eating up their estate and taking assets from their loved ones, you may want to consult with a bankruptcy attorney in your state to see if you can have those debts wiped out to help preserve your estate for the people you care about.  For additional information regarding estate planning or bankruptcy, contact the Law Office of Suzanne Szymoniak.

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