Bankruptcy of Your Student Loans

Bankruptcy of Your Student Loans

Friday, April 22, 2016

CAN YOU PROVE UNDUE HARDSHIP? YES, BUT YOU NEED RECORDS!

STEP #8 – DOCUMENTATION


Just today I was reading one of my favorite blog sites “Get out of Debt Guy”, and someone wrote in for advice about getting a recent call about a 20-year old student loan which the person thought had long been forgotten, and for which they had stopped paying on.

While the person's question did not provide much detail and left the Get Out of Debt Guy with little to go on to provide good advice, my take was that the person needed to find out what was going on. And in my opinion they needed to do some research, find out who was calling them, and do some digging to find their records!

Which brings me to what I want to talk about today in the continuation of my discussion of some steps needed to discharge your student loans. Let's take a hard look at what documentation you need to discharge your student loans, from the point of bankruptcy and proving undue hardship.

At the point of my decision to do something about my student loan debt, I soon realized I was going to need some proof that I was never going to pay off the debt. I also realized that it was going to require a fair amount of work to come up with that proof. At first it seemed like an impossible task and that the deck was stacked against me by the Department of Education.

After all my loan was over 27-years old, and had grown out of control due to penalties and interest applied when I was no longer in a deferred status having been taken off of SSDI and in-voluntarily placed on straight Social Security. My loan was now nearly three times the amount I had originally borrowed and it was now due and the interest on that loan was being paid for under a garnishment offset by the Treasury Department.

I was in a bad place financially, and all I knew was I needed a way out. The way out meant I had to prove I could not ever pay the loan off, and that my situation was hopeless.

What I needed was documentation and records to back that up. Thus began a gathering of information. I hope by sharing what I needed, it will help someone here.

As I have stated before, in order to get out of debt and get rid of those student loans, you are going to have to file bankruptcy. Filing for bankruptcy requires you to fill out official forms, including a bankruptcy petition and a series of schedules that give the court an idea of your finances. In addition, you’ll submit documents that disclose the details of your financial affairs.

Whether you are filing for Chapter 7 or Chapter 13 bankruptcy, the documents you must file are usually the same, although guidelines and requirements may be different depending on the state and judicial district in which you live. Check with your bankruptcy clerk's office to make sure you are meeting your district’s requirements.

Chapter 7 Bankruptcy Documents

The bankruptcy courts require several documents. Here is a short list of the most common types of records that a Bankruptcy Chapter 7 requires:
  • Valid Proof of I.D. - Photo Identification Required – Most courts have security checks
  • Proof of Social Security Number – Generally a separate form is submitted w/chapter
  • Bank Statements – Checking and Savings accounts – probably the prior 6 months
  • Pay Stubs – Most courts require 6 months of pay stubs
    • If you’re employed, locate copies of your pay stubs from the six months prior to your bankruptcy. Also, secure copies of your last two W-2's. If you’re self-employed, a profit and loss statement (“P&L”) covering the six months prior to your bankruptcy, along with bank statements supporting the amounts on your P&L, will suffice.
  • Retirement Records (if applicable) – Social Security Account Statements, Others
  • Tax Records – Minimum of the prior year's filed tax returns - State and Federal
    • Locate copies of your tax returns or transcripts from at least the past two years. If you haven’t filed your taxes, you’ll either need to provide a valid reason for not filing, or you’ll be required to file your taxes and show proof that you did.
  • Property Valuations – if you own real property – or hold a mortgage or loan on same
    • If you own property, you need to show the amount of its value—either an online valuation, a broker’s price opinion, or a full appraisal is acceptable. You also need to submit a mortgage statement that includes your loan balance, deeds of trust, and proof that your home is insured.
  • Automobile Documentation
    • If you own a car, you must submit copies of your registration, proof of insurance, and information about how much your car is worth. If you’re still working on paying off a vehicle, submit a copy of your most recent auto loan statement.
  • Child Support or Alimony Documentation
    • If applicable, show proof of expenses such as child support or alimony.
  • Proof of Marriage or Divorce (may be required in some districts)
  • Bills and Loan Statements
  • Mailing Matrix” - A list of creditors, with addresses – (See local rules on format)
  • Statement of Compensation Paid to an Attorney – if applicable
    • Finally, you will need a statement disclosing compensation paid or to be paid to your bankruptcy petition preparer, if applicable.

Chapter 7 Bankruptcy Forms

Bankruptcy forms consist of lettered and numbered forms, some are statements and some are referred to as “schedules”. The U.S. Court website provides downloadable and most of the forms can be pre-filled on-line then printed out. Additionally, your local court may have additional forms which they require. You will need to submit the following Chapter 7 bankruptcy forms, available for download on the U.S. Courts website :
  • A voluntary petition, which includes names and addresses of all creditors.
  • Certificate of Completion of a Credit Counseling Course
  • Statement of current monthly income
  • Schedules of assets and liabilities
  • Schedules of current income and expenditures
  • Schedule of executory contracts and unexpired leases
  • Statement of financial affairs
  • Statement disclosing compensation paid (or to be paid) to your bankruptcy petition preparer
Discovered I had many records already!

So what did I have already? Well for starters I had statements that I got in the mail from both the Social Security Administration and my Federal Retirement agency which showed what was being withheld each pay period to pay a portion of the interest on my student debt. Now I admit I hate paperwork, and I was not really good about keeping stuff, but somehow, I had kept several years worth of these statements (most likely it was divine providence and not my doing as I am sure I did not think I would ever do anything with them years ago).

The other miracle I discovered was that even though I had recently moved and threw a ton of paper away at the local recycle bins, I still had in my possession some of my original student loan paperwork, including most of many receipts of money orders I had used to pay $90.00 a month for over three years towards my student loans.

I also had kept documentation of my Social Security Disability application along with other vital records regarding my medical conditions, and proof of payments from the time I was receiving SSDI, and other letters and correspondence related to my mental conditions and hospitalizations.

Other legal records, like my divorce papers (twice divorced here), and files that included my previous bankruptcies (twice before this last one) were what I found and were going to be part of my proofs! By some measure of God's grace I somehow had preserved and kept a lot of what I was going to use in proving my undue hardship case in bankruptcy number three.

I also learned that I could request records that I was missing or may need. 
 The internet age is amazing and I am now convinced that you can find anything you are looking for if you ask the right questions!

If you find you do not know your student loan history, try by doing a search on line. The link to see your loan history (for most Federal Loans) is: National Student Loan Data System for Students at https://www.nslds.ed.gov/nslds/nslds_SA/ When you are here, you can create an account (if you do not already have access to the site s information pages). “If you do not have an FSA ID, select the Create An FSA ID tab”.

When I logged into the FSA site today, I found all my loans still listed, but they NOW have a ZERO $ balance! Praise the Lord! Thanks to a full discharge under 11 U.S.C. §523(a)(8).

Make sure you copy the link(s) to this web site. I recommend keeping a separate file named student loan data hyper-links (or similar), you will need to go back over these sites several times during your case documentation and preparations.

My other method of getting records was to write to everyone! I wrote to Hospitals for my mental health records, I wrote to all of the loan servicers I knew I had dealings with and even to those I was not sure ever serviced my debt. I wrote to the Social Security Administration, the agency in charge of collecting the garnishments of my income and to several agencies who are part of the Department of Education.

When you draft a letter, write it so you can mail the same letter to several agencies and only have to edit the mailing address. Ask specific questions asking for details about your loan balances, payments made, interest rates, fees and penalties, and any other pertinent information relevant to your specific situation.

Keep a copy of the letters in a separate folder with a main folder. 
 Example would be “letters to lenders” within “my bankruptcy” folder.

When you get a reply from anyone, keep the paper copy but also “scan it” into your computer.
From now until you file your case every document is an important record and you will eventually include them as part of your case as “exhibits” within your Adversary Proceeding.

Records for an Adversary Proceeding

Next time I will continue with what other records and documentation you may need when you file an Adversary Proceeding. The documents to support your “complaint” are what the court calls “exhibits”. Exhibits must be submitted to the court according to their local rules and format. The guidelines for how to prepare and present exhibits is covered under a federal statute, but most courts will provide a written guideline as part of their local rules.

I had a list of 25 Exhibits in my case! The number of 8.5 by 11 inch pages was over 1,200 pages, and those 25 exhibits filled two 3-inch binders! The court required I submit the original and two copies and I also needed to give a copy to each of the defendants! That is a ton of paper and copying. And yes… it cost me money to provide the exhibits but I would not have won my case otherwise! More on this latter – but I was prepared and avoided the process called “discovery” and also won without a pretrial hearing or having to present my case in a protracted trial --- All because I had all of my documentation BEFORE I filed my case!

Until next time, begin to think about the documentation you have, and start to gather it into a secure place. I purchased several manila file folders and labeled them so I could easily find what I needed when the time came to pull all of the records together. I also scanned each document into a computer file. In my adversary proceeding, the defense attorney was willing to accept a thumb drive with all of my exhibits which where saved as PDF documentation. Having the U.S. Attorney accept a thumb drive saved me the cost of another set of three ring binders, and the cost of copying over 1,200 pages at the copy center.

Thanks for reading along. If you have any questions or comments please feel free to post them here. I will be happy to hear from you and to answer any questions or concerns.

Blessings, Richard Allan Precht



Tuesday, April 12, 2016

LET'S LOOK AT BANKRUPTCY OF THAT STUDENT LOAN


Step #7 in “Steps Needed to Discharge Your Student Loan”

As I continue to write about my experience and my success in discharging my student loan debt, I want to provide information that will help anyone who is struggling with a student loan and who has reached the point where unless they win the lottery their student loan is never going to ever be paid off.

When I reached that point, I made the decision to once again file bankruptcy and this time I was going to attempt to include my $130,000.00 student loan. I had filed two previous bankruptcies in my lifetime, not something I am proud of, but also I am not ashamed to say it either. My life has been very difficult and I too often found myself out of work and out of money. I never looked for trouble, but too often it found me.

This week I am going to share some information on Bankruptcies and how a discharge of student loans are viewed by the legal system.

For over 25 years student loans have been basically “prohibited” from being discharged as part of a bankruptcy chapter.

Within the laws of the bankruptcy this prohibition is found within Section 523 subsection (a) and (8) of the United States Code, article 11. Learn this section well. Finding articles and cases about bankruptcy and student loan debt is easily searched in any browser using the key phrase 11 U.S.C §523(a)(8).

Here is what is stated in 523(a)(8):

Section 523 (a)(8) states that student loans cannot be discharged, unless payment of the student loans would impose an undue hardship upon the debtor or his dependents.

This section has been part of the bankruptcy law for over twenty-five years. It was also amended in 2005 to include private student loans. Please take note of the word “unless” in that section.

You have to admit the way they worded this paragraph is kind of confusing; especially in the context of the bankruptcy code where they list certain debts that the code calls “exceptions to discharge”. Which includes debts for taxes and other debts that fall under illegal activities.

Take a look at §523 (a). https://www.law.cornell.edu/uscode/text/11/523. Notice that under (a) it begins with (1) followed by capital (A), (B) (i)(ii), and so forth, until you reach (8). And (a) (8) is where we find the 'undue hardship clause'.

Let me go further.... Under (8) the next bullet is another capital letter (A). The (A) is further delineated by two more subparagraphs (i) and (ii), then those paragraphs are followed by (B) which stands alone with its own statement. Admittedly the code's bulleting standard is a bit awkward to follow along. It takes a while to get what they are doing, but once you read through section 523, a couple of times, it becomes less awkward. Take a look at the full text.

Here is the complete section under (8):

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)
(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

(Note that I highlighted in red the word “for-”.... This “for” further helps describe what is included within the 'undue hardship' descriptor of the “unless” phrase, and “for” includes what can be simplified as 'student loans' Stated as: educational benefit overpayment; loan made; (which is) insured or guaranteed by a governmental unit, or made under any program funded in whole or part by a governmental unit or non-profit institution; or, (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan as described by (the IRS).”


This is the undue hardship clause in full … which “permits” you to include student debt in a bankruptcy proceeding. HOWEVER, you must understand that just filing a personal bankruptcy DOES not wipe out the debt. The U.S. Bankruptcy Court requires that you “PROVE” undue hardship. And that requires a “separate” legal filing which is called an “Adversary Proceeding” (AP).

Filing the AP is needed to state your case and acts as a legal “complaint” against the creditors (your student loan lenders or holders, and in most cases the Department of Education of the United States of America). It boils down to filing a lawsuit against the U.S. Government, and can only be filed in a U.S. Federal Bankruptcy Court.

You may wonder why the IRS statute is included under (B). The bankruptcy code refers to the IRS in this paragraph in relation to the phrase a qualified education loan”. (Bear in mind not all loans meet the criteria under the wording “qualified”). My understanding is that this was written into 523 to deal with Private Student Loans which in 2005 were included in the exception to discharge and not dischargeable unless undue hardship can be proven.

Here is a great link to help describe section 221(d)(1) of the Internal Revenue Code of 1986:

If you attended a private training school like for example a flight school or other specialty school which would be a non-traditional college or university, then you need to determine if money you borrowed to attend falls within the term “eligible educational institution" . To help you understand the question, 'so what is an qualified educational institution'? Basically it is any post-secondary school authorized to participate in the U.S. Department of Education Student Loan program. Quoting the author Peter Scribner, Esq., at the link provided above: It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) post-secondary institutions. The educational institution should be able to tell you if it is an eligible educational institution."

As I have written in previous steps, you need to learn everything you can about the status of your loans. Things like... who is the loan holder; what type of loans are they (private or federal backed loans); and were the loans for education benefits at a qualified institution? The link for federal loan information (which may include private loan information as well) is located here: https://studentaid.ed.gov/sa/. Be sure to either copy or print out the information and save it for later as you will need this to build a case for undue hardship, in the bankruptcy court.

Step #7) Research Bankruptcy Chapter Rules and Forms


Begin now to save all of this information to a separate file on your computer. Next time I will talk about what records I needed to win my discharge of my $130,000.00 student loan debt.

OK let's assume you want to consider filing bankruptcy...

My question is are you willing to admit that you have reached a point of no return and no way out? Are you struggling so much that you cannot pay other bills? Do you have other debts that you cannot make payments on? Are creditors driving you insane, calling every day with threats of lawsuits or wage garnishments?

To discharge your student loans using an Adversary Proceeding you are going to have to have other debts that you need to be free from...(You cannot file bankruptcy just on the student loans) You must have other debts besides the student loan debt, and those debts need to be part of a personal bankruptcy filed with a U.S. Bankruptcy Court in your local area. To find a U.S. Federal Bankruptcy Court in you locality use this link: http://www.uscourts.gov/court-locator.

What is your financial situation? What is your family situation? Are you single, married, divorced? Do you have children; and or child support obligations? Do you own property? Do you own a home, more than one car, boats or other recreational vehicles? Do you have a high paying job or are you under-employed or even unemployed? What is the total of your debts and of your assets? Do you have a savings account, IRA's CD's, Trust Funds, Stocks, Bonds, etc? All of this information and more is going to be needed if you file for bankruptcy.

In bankruptcies there are two choices for individuals. A Chapter 7, and or a Chapter 13 personal bankruptcy. If you are married you will be filing jointly, and assets and debts of your spouse will be listed on the income, expense, and debt schedules of a chapter.

My bankruptcies (all three of them) were filed as Chapter 7's. Chapter 13 is basically a re-payment plan that the bankruptcy court sets up to pay back your creditors over 3 to 5 years.
See this link to see the descriptions and differences of a Chapter 7 and 13: http://www.ms-bankruptcy.com/bankruptcy-info/differences.

The great thing about filing bankruptcy is being able to get a “fresh start”. I filed 3 times now and only one time did I use an attorney; who basically did very little to earn his money or my appreciation. Filing without an attorney is not difficult, and most courts are very helpful to those who cannot afford a lawyer. Bankruptcy courts even provide fee waivers or payment options for the filing fees. If you have no money or assets at the time of filing do not pay the fee, but request a fee waiver first; the court will make the decision to waive the fee or have you pay based on your income and expense schedules. Both times I filed without a lawyer my fees were waived.

A side note: I think this is worth a smile! When I filed my chapter 7 with the clerk here in Alexandria, she was not only VERY helpful, but she said to me, “Mr. Precht you have everything I need to file your case” I said “well, I tried to make sure I have it all” she replied “you do... most attorneys do not have everything right (when they file)”. The same clerk became the manager of my case and we had a great rapport... When I won my $130,000 discharge she congratulated me on a job well done!

Once you locate the U.S. Court where bankruptcies are filed in your area, you will see that most of them maintain a website. Copy and save the link to your bankruptcy folder. You will find that each of the courts provide most of the forms you need to file a chapter 7 or 13. The forms are “fillable” on-line, and are generally PDF documents which once you fill in the information, you can print out. Note: sometimes filled out PDF forms cannot be saved to a file but must be printed out when completed, otherwise you have to start all over!

Note also that most courts have what are referred to as “local rules” and or “local forms”. While the U.S. Bankruptcy Court has standard forms, some regional courts have other rules and forms specific to their own court. The web site for the U.S. Court to access forms is here: http://www.uscourts.gov/forms/bankruptcy-forms.

The local site where I filed my chapter is here: https://www.vaeb.uscourts.gov/wordpress/. The tabs at the top of the page include one called “Filing Requirements” the drop down menu includes a list of the chapters, and lists two important links, one is “Fee Waivers” and the other is “Filing Without An Attorney (Pro Se)”. As I say, the courts are very helpful, and with a few key strokes you can learn all about the process of filing a chapter without the expense of a lawyer.

The other tab of importance at this point is “Forms” the drop down takes you to a page where it lists “National Forms” and “Local Forms” (you need to be familiar with both). If you call or visit the court in your area, the clerk will most likely have a no-cost package of information which includes the basic instructions for filing a chapter.

At the Virginia website they provide Pro Se information in a PDF document. Here is that doc: https://www.vaeb.uscourts.gov/wordpress/?wpfb_dl=206.

Take note that most of the filing done by attorney firms is now filed electronically. In my court, they do permit Pro Se filers to file electronically, thus I had to file in person by going to the court and having the clerk file my chapter forms, schedules, and pleadings. Your court may be different, so check (read all of )the local rules.

BEFORE FILING BANKRUPTCY FORMS

OK... Anyone who plans on filing a chapter must complete a “credit counseling course” before they file with the court. Here is the rule:

Credit Counseling & Debtor Education:
All individual debtors who file a Chapter 7 bankruptcy are required to obtain credit counseling from an approved provider within 180 days before filing for bankruptcy relief, pursuant to U.S.C. Section 109. A certificate of credit counseling and debt repayment plan, if any (as required by 11 U.S.C. Section 521) from the approved provider must be filed with the petition. Pursuant to Local Bankruptcy Rule 1007-1, if these documents are not filed with the petition, the Clerk shall enter an order dismissing the case.
Source: https://www.vaeb.uscourts.gov/wordpress/?page_id=1308


In my situation I searched on-line and used the phrase “free pre-bankruptcy credit counseling” and several advetisements popped up. Note: by law, if the debtor is unable to pay, the course provider must agree to waive the fee. Most of these firms offer a on-line course, while others may provide classroom type training sessions. I chose the on-line version, and I was granted a fee waiver. The company I used was: DebtorCC, based in New Jersey. While the website shows pricing, I emailed them and requested a waiver, and they agreed to waive the fees for both the pre-filing-bankruptcy-credit-counseling course and the post-bankruptcy courses.


The two required courses take about an hour each to complete, and while it seems pretty trivial and some of the questions and information can be a tad elementary, just go through the course, and get the certificate. You will need to file a copy (keep one for your records) with the clerk along with all of the required chapter forms and schedules. They will not file your chapter without this course certificate. The post-bankruptcy certificate must also be filed once you win your case - or you could hold up the closing of your case and or be found in contempt.


OK... I am going to stop here for now. You have a lot to read and research! I will continue next time with some help on what else you are going to need to file a chapter 7 or 13 personal bankruptcy.


If you are following this blog, let me hear from you! I love to know who is finding this website and what help you are looking for. My hope is to be able to provide some useful information based on my successful win and full discharge of my $130,000.00 student loan debt using the Undue Hardship Provision of the Bankruptcy Code U.S.C.A. 11 §523(a)(8).


Until next time, best regards, Richard Allan Precht









Sunday, April 10, 2016

ANOTHER STEP IN DISCHARGING YOUR STUDENT LOAN

LOOKING AT OPTIONS - WILL A REPAYMENT PLAN WORK FOR YOU?


I thought I would continue to present some more steps I found to be required to be successful in discharging your student loan. My successful discharge of my 27-year old student loan debt of $130,000.00 has been described by my friends as a “miracle”, and in some ways it was. But like any miracle of biblical proportions it took a leap of faith and required the person to do something and act on that faith.

Like I mentioned last time, the first step is actually coming to the conclusion you are in a desperate financial situation, and find yourself unable to ever be able to see a way out. When you determine that your situation looks hopeless like I did, and you have tried some of the options available from the lending and loan servicing agencies and still are unable to see how to resolve your Federal Student Loan situation, you may be able to prove “undue hardship”.

Proving undue hardship was my way out from under my debt to the Department of Education (DOE), where all of my loans had been consolidated and had fallen into default and my small incomes from Social Security and a even smaller civil service retirement that were both being garnished to the tune of nearly $300.00 a month. That monthly offset was taken out each month leaving me only $1,200.00 to live on. The ridiculous part is – that $300 was not even covering the interest required on that $130K debt! Is that crazy? Yes!

The loan balance was growing everyday. The interest was accruing daily. It was never going to stop, and unless I won the lottery I was never going to pay off that debt. The fact is there are over 160,000 people who are having their social security checks garnished to pay on their student loans. Even younger debtors are having their wages garnished.

If you find yourself unable to fend off the collection agencies who call every day and night, and have run out of options, then perhaps proving undue hardship will not be as hard as you think? I did it, and while I was unsure if I would be successful, the fact is I did win in court, and it was a miracle of sorts. I am here to encourage you towards your miracle.

In my April 2nd blog “FIRST 5 STEPS TO DISCHARGING YOUR STUDENT LOAN” I discussed some of the things I discovered and acted upon. Here are those first steps in list form:

#1) Are you in a similar situation? If so, the 1st thing to do is take stock of your loan situation and what is going on with your loans.

#2) Learn everything you can – including other options on how to work with lenders or the DOE. Loan forgiveness programs may be an option – but read the fine print! Not everyone is eligible for Loan Forgiveness. True loan forgiveness programs are limited! Many are scams!

#3) Disability may qualify for forgiveness of your Federal Student Loan – but again, you need to meet all the qualifications and know what the legal interpretation is. Beware because even if you qualify for a TPD (Total Permanent Disability) discharge you may end up paying income tax on the amount discharged – the same Tax penalty also applies to loan forgiveness!

#4) Get to know what constitutes “Undue Hardship”. I successfully discharged ALL of my debt under this provision – I had tried several other options. I had no way out – bankruptcy was my last resort – but it also was the answer to my financial situation. My story is posted here:

#5) Learn to be your own attorney – You can do it! Besides if you are in financial crisis, you probably have no money for a $600.00 per hour lawyer. Even if they would take your case, you are statistically better off without one according to this Steve Rhode article: http://www.huffingtonpost.com/steve-rhode/bankruptcy-student-loans_b_2416031.html


ADDITIONAL STEPS FOR DISCHARGING STUDENT LOANS....


As I talked about in my last post, you really need to research and learn EVERYTHING about available options to becoming free from your student loan debt if you are drowning in debt. If you have a well-paying job and you are living pretty good, chances are you will not be considered by the DOE or other lenders for loan forgiveness, or discharge.

If you are thinking you can just avoid paying those loans, you are fooling yourself! The lender does not stop the charges just because you ignore them. Student loans do not get “written off” like that overdue bill to the Doctor's office. Student loan debt is life long debt!

My loan grew from the original amount of $55K to $130K. In spite of actually paying off a loan or two, and paying nearly 1/3 of the debt off, I could never keep up the payments that were required due to under-employment, minimum wage jobs, and ending up on disability (SSDI).

When I fell behind, I requested forbearance's, and deferments. I worked with lenders as best I could, and also agreed with the DOE to consolidate my loans – which changed the re-payment period from 10 to 30 years! After being on disability for nearly seven years my loan was suddenly declared in default and due in full. Social security switched me over to regular age-based annuity payments – I was no longer under a disability deferment. That is when both my retirement annuity deposits began to be garnished by the DOE.

SIX – A REPAYMENT PLAN?


When you signed for your federal student loans the school financial aid office probably gave you a lot of information in a short period of time. At the time all I cared about was being told I qualified and could register for classes. And if you step back and take a look, it is pretty obvious that the college was doing all they could to get me to enroll. The folks in financial aid do not provide you with statistics about the future job market for your career field, nor do they provide much financial counseling.

As my good friend Richard Fossey blogged this week on his web site, Condemned to Debt,Colleges and universities have an incentive to maximize their revenues, which means luring tuition-paying students through the door. “

Richard Fossey's article is worth a read and I am providing a link to it below. The article is a op-ed about the new Secretary of Education, John King's espousal of a report by the Financial Literacy and Educational Counsel which “emphasizes the role that colleges and universities can play in enhancing their students' ability to make good decisions about financing their college experiences.” Secretary King seems to believe that by providing college students with financial literacy courses, students will have more incentive to pay back their loans, but as Fossey says: “higher education institutions have zero incentive to warn potential students that some of their degree programs are a bad financial investment.”

Perhaps I am cynical but as the DOE looks for answers to appease their congressional overlords, touting financial literacy courses as the solution to the nearly $1.4 trillion dollar in outstanding student loans is ridiculous! And telling colleges to provide these courses is about 100 years too late! The government overlords should have started this generations ago, and not after enrollment but probably in High School?

Now due to the student loan crisis, the DOE has tried a variety of things to appease those pundits demanding something be done to hide the facts about the student loan crisis. While I may be wrong, I think the DOE has spent a great deal of time and money trying to deflect (and intentionally deceiving) those pundits by creating re-payment schemes, putting students into long-term loan repayment plans with the sole purpose of not allowing loans to fall into default.

Let's take a look at just a couple of these so-called re-payment plans.... 


The Department of Education (DOE) offers several payment plans. The DOE maintains several websites. One of those websites Federal Student Aid (FSA), and per their own “about us” drop down, they are a “part of the Department of Education” and “responsible for managing the student financial assistance programs authorized under Title IV of the Higher Education Act of 1965. These programs provide grants, loans, and work-study funds to students attending college or career school. (see the link below)

Under the FSA's drop down “How to Repay Your Loans” is where they describe all of the repayment plans. Click here to take a look at this page: https://studentaid.ed.gov/sa/repay-loans/understand/plans. On the right side of the page, FSA has “quick links” to their (5) categories of repayment options. https://studentaid.ed.gov

Those include: the “Standard Plan”; “Extended Plan”; “Graduated Plan”; “Income-Driven Plans”; and “Income-Sensitive Plans”. My suggestion is to become familiar with each one of these plans, some of which have some stringent criteria and rules.

In my situation I had agreed to consolidate my loans. While all the repayment plans provide options to include allowing consolidation, not every type of loan may be eligible for consolidation. Thus, read and re-read the fine print of each of these repayment plans. My step number six (6) then is:

#6) Explore all of the so-called re-payment options and plans for your student loans. One website I suggest is: https://studentaid.ed.gov/sa/repay-loans/understand/plans

In my own situation, I was called by someone representing the DOE who convinced me to consolidate my loans which at the time was close to $48K. If I recall correctly it was in 2001
and the consolidation extended my payments from a 10-year payback to 30 years! In 2001.
I was 53 years old, which meant the loan would be paid off when I reached 83 years of age! And if I remember right, the payments were going to be about $480.00 a month!

At the time I was employed, but soon after lost my $58,000.00 a year job, lost a house to foreclosure, and got divorced for the 2nd time, and within a few months became disabled and began receiving SSDI.

Repaying nearly $500.00 a month was not possible. With my disability status my loan was put into deferment, I was not required to make payments. As I had written previously once I reached full retirement age, the DOE came after me for the debt. Which had grown from the $48,000 to $78,000 then grew to a whopping $130,000 by the time I decided to file my 3rd life-time bankruptcy and file an adversary proceeding to prove undue hardship.

Let me finish up this about repayment plans with a word of caution and warning.... 


Read the details of each plan very carefully, know what it will cost you! Every plan has to be examined because each plan applies to certain loans, has differing pay-back periods and interest rates and may not fit your particular situation. Lastly, BEWARE! Most of the so-called forgiveness plans may promise that the loan will be discharged after so many payments or years, but not only can you not “skip” a payment but you may owe taxes on the amount forgiven! And that tax bill could be huge.

I have read where some people have been told that due to their poverty situation, they can make zero dollar payments, and after 25 years the loan is forgiven, but in reality those same zero-paying folks end up owing hundreds of thousands of dollars in taxes on the amount forgiven. So at the time these folks are in retirement, they are going to be hit with a huge capital gains tax bill, which will wipe out all of their retirement and or savings and probably take everything they own? Welcome to loan forgiveness?

OK I had intended to provide a few more steps this week, I will leave you with one for now, and pick this up again next week. There is a lot to look into regarding repayment of your student loans, and all of that should be researched before you make a decision to file bankruptcy. So let me stop here for now and encourage you to continue to follow me and please do not hesitate to comment or ask questions. I appreciate all feedback. You can get notified of my latest musings and articles by using the email link at the top right of this page.

God Bless! Richard

Further suggested articles about re-payment: 




Saturday, April 2, 2016

FIRST 5 STEPS TO DISCHARGING YOUR STUDENT LOAN

LET ME GIVE YOU SOME STEPS REQUIRED TO DISCHARGE YOUR STUDENT LOANS!

On February 5th 2016, the U.S. Attorney representing the Department of Education called me at 4:00 PM Eastern Standard Time, and said: "Congratulations Mr. Precht, I have good news for you, the Department of Education has decided to discharge your Federal Student Loans".  That phone call took place 3 days after I met that same attorney in the courtroom, where he had filed a "Motion to Strike" my complaint filed (using an Adversary Proceeding) in Bankruptcy Court under the Undue Hardship Provision within 11 U.S.C.A. §523(a)(8).

All the work I had done over the previous year paid off... I am now debt free! Free from a $130,000.00 student loan which was never going to be paid off in my lifetime.  To those who may not be familiar with my story, the facts are that I borrowed about $55,000.00 over 27 years ago at the age of 40 to 48 to earn a Bachelor's and a Master's degree in the effort to enter the health administration field with designs on getting into a more stable and higher earning career.

The events of my life before returning to college at the age of 40, and the events that followed my successful college endeavors, can only be described as undue hardship!  The things that I endured are not anything I would wish on anyone.  My only hope is that I can in some way help someone else who has found themselves at a point of desperation and in need of advice as to how to get free from the burden of a student loan debt that is out of control!

So today I would like to present a simple format on how I was able to successfully win against the U.S. Department of Education without a lawyer, without a trial, and within a matter of a few weeks.  I want to make it clear - it is possible - with the right attitude!

THE FIRST THING YOU NEED

The 1st thing I did was to decide that I needed to do something!  My financial situation was desperate.  I was living on $1,205.00 per month.  Each month my social security and a small Federal Retirement annuity incomes were both being garnished.  Nearly $300.00 every month to pay "towards" the interest on my consolidated and also defaulted 27-year old loan.

The so-called offsets that the U.S. Treasury withheld and was applying towards my loan were NOT even making a dent in the interest!  In fact, that $300.00 fell way short of the amount required to pay the accumulating and accruing interest!  As I checked periodically, I learned that the total balance of that loan was growing rather than decreasing!

#1) Are you in a similar situation?  You need to take stock of what is happening with your student loan debt.  One of the most important places to look for your loan data is here:
https://www.nslds.ed.gov/nslds/nslds_SA/  On this web site, you will find all of your loans.  (I just now went there, logged in, and found that my balance is NOW $0.00 - "Zero owed").

SECONDLY, LEARN EVERYTHING YOU CAN

When I made the decision that something had to be done to end the craziness, I started to research all of my options.  With all the advertisements and news about so-called "loan-forgiveness", I looked into those programs with the hope that somehow I could just have my loan forgiven, after all it was never going to get paid off - especially with me being 67 years old, retired and unable to work or find a job that would pay enough to live on and make loan payments for a $130K and growing debt.

In the quest of loan forgiveness, the things I discovered need to be known.  Yes, there are programs available where student loans are forgiven.  But beware, not everyone or every loan qualifies!  

#2) True loan forgiveness programs are limited!  The best place to learn about the Federal Government's Loan Forgiveness plans that actually deal with student loan forgiveness is here: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service
There is similar information on this web site: http://www2.ed.gov/fund/grants-college.html?src=pn.  There may be others, but begin with these two - because they are sites published by the Department of Education (DOE), and provide the criteria for loan forgiveness or discharge approved and validated by the DOE.

AVOID THE TEMPTATION TO USE A LOAN FORGIVENESS AGENCY!

The TV Radio and Internet has for years now advertised Loan Forgiveness and even included the wording "Obama" in those ads. As if the current President of the United States (POTUS) has pulled out his magic wand and will make your student loans disappear! While there has been some changes by our POTUS to try and have the DOE offer some relief to students, the truth is there is no magic solution.  As in #2) above there are only certain situations where true loan forgiveness takes place and the criteria is VERY LIMITING! Read those linked pages thoroughly!  Unless you meet some of the stringent factors required, and there is a lot of fine print ... you may not be eligible for the plans described!  I know I was NOT!

Take a look at the three links I am listing here.  I did a quick web browser search under Obama Loan Forgiveness, and here are three that came up: 
http://www.studentdebtrelief.us/forgiveness/obama-student-loan-forgiveness/  http://studentdebtcenter.org/student-loan-forgiveness/  and www.washingtonpost.com/news/grade-point/wp/2015/12/18/what-you-need-to-know-about-obamas-latest-student-loan-plan-before-enrolling/

Did you notice something? The first link is to a site called "Student Debt Relief" and at first glance you would think it is there to help you!  But take a look next to the name, it says "A Private Company Not Associated With The Department Of Education"....  That should be a warning! But also I suggest that you read the information on this link and any similar links. Because, they have a lot of good information, the only drawback is, they are private firms and do not give this information for FREE!  They offer to "assist you"  and in actuality these firms, offer to help you assess your situation and then help you fill out the forms.  The same forms the DOE has on their websites.  You don't need these firms.... and in some cases they are no more than profiteers and loan sharks offering to "refinance your student loans"!

In my humble opinion, these so-called loan forgiveness firms are DANGEROUS! There are several current news stories about the deception and the corruption of these companies. Here are two examples I just pulled up: https://www.washingtonpost.com/news/get-there/wp/2015/06/01/student-debt-relief-scams-are-on-the-rise-heres-how-this-government-official-plans-to-stop-it/  and http://gallerlaw.com/2016/02/18/scam-alert-student-loan-debt-forgiveness-could-leave-you-owing-more-see-more-at-httpclarksvillenow-comlocalscam-alert-student-loan-debt-forgiveness-could-leave-you-owing/   I can't make this stuff up!


THE 3RD THING

After I graduated with my Master's degree in Health Administration I was never interviewed for that field even though I had sent out hundreds of Resumes. It was not that I was not qualified, I had earned a 3.8 GPA as an undergrad and a 3.6 as a Graduate Student.  It was the economy!  There were just no jobs.  I ended up doing some teaching at community colleges and also went back to my previous occupation in construction management for a time.  I never made a career in the Health Administration scene!

Several personal tragedies occurred and within a few years of graduation, I was diagnosed with disabilities and applied for and was granted SSDI (Social Security Disability Income).  I was on SSDI for a period of about seven years, until I became what Social Security described as "full retirement age" and they switched me from SSDI to straight Social Security annuity payments.  Once I was on straight Social Security, my student loan was no longer in deferred status.  That is when the DOE began to garnish my monthly income.

And when this happened I learned that my loan was now nearly two times what I had originally borrowed, even though I had paid off some of my loans before becoming disabled! Now with the DOE saying I owed nearly $80,000.00, it prompted me to investigate and pursue a Total Disability Provision discharge which the DOE has in place.  I filled out the forms, waited, and was eventually advised I did not qualify.  I re-applied a year later, but the DOE never replied to my second application.   The DOE's Total Disability Provision is managed by one of their many sub-divisions.  I pulled up the form and information located on this web page:  https://financialaid.duke.edu/sites/default/files/disability_discharge.pdf

And... of course the "Private Companies" are offering their help as well here: http://www.studentdebtrelief.us/forgiveness/total-and-permanent-disability-discharge/

There is "law" that was written to describe what constitutes total and permanent disability discharge, and I am including that here: https://www.law.cornell.edu/cfr/text/34/685.213

The subject is a hot topic and many news reports have also discussed the subject, here is just one written in July 2015 and published in U.S. News in the Education Section: http://www.usnews.com/education/blogs/student-loan-ranger/2015/07/01/ways-to-qualify-for-a-total-and-permanent-disability-student-loan-discharge

#3) Again, let me emphasis that even if you are not now disabled, the information is valuable to know so that you understand what is behind these types of discharges and get a perspective on the way the DOE operates.  So learn it all - and use it to your advantage in preparing to discharge your student loan debt!

FOREMOST

If there was any "step" I could show you to help you finding a way to discharge your student loan debt, it would be this one!

#4) Get to know what is meant by undue hardship!  

If you are serious about getting out from under your student loan debt, the answer may come down to determining you are struggling so badly - that you find no way out!

When I came to that conclusion, I reached out to the DOE for help, and when they seemed to care less, I became very despondent!  It took some time, but I re-booted and started over. I began to research again and began seeing articles about "undue hardship discharges". Then I began to read the statutes and law about bankruptcy and student loan debts.  That led me to begin reading cases where people went through bankruptcy to dissolve their debts which included their student loans.

In fact, I began to read and re-read cases.  Many of them revolved around situations that were similar to mine.  People who found themselves unable to pay off their student loans and in dire financial shape.  Many of these bankruptcies went into long drawn out trials and took months and in some cases years to be decided.  And many of those cases ended with the student debtor denied a discharge and no better off than before.  However, there also were many cases where the debtor prevailed and "proved undue hardship" thus being granted relief of their indebtedness to the DOE or private lenders.

This was the beginning of my hope!  I saw that many cases were winnable - however in order for me to win, I needed to see how cases were lost as well!  Both sides of the coin need to be thoroughly examined!

What really shook me while I read case after case was the fact that there was no consistency!  None!  I found that no two courts decided cases the same.  At least that is how it looked. The problem boiled down to the fact that undue hardship was and remains a very difficult term to describe.  Courts were left to interpret the term and with hundreds of bankruptcy courts and thousands of bankruptcy judges, the problem became - and in many ways remains monumental! 

While I have hundreds of articles on undue hardship, I chose to just do a quick search on the topic using the key phrase "COURTS STRUGGLE WITH UNDUE HARDSHIP CLAUSE"
Here is what came up and I think it is a pretty summation of what I would like you to know right now: https://lawyerist.com/43123/undo-undue-hardship/


Also... please read my past blog articles about undue hardship to get a better understanding of the difficulty the courts have had in ruling on undue hardship and what they have tried to do to standardize those rulings. Again, learn everything you can - you will need it to win!


FIVE GOOD THINGS TO KEEP

If you are serious about getting rid of the student loan in your life, you can... but it will require your time and effort.  No one is going to do it for you.  If you are in deep financial trouble, a lawyer is not the answer!  And from what I discovered, very few lawyers will help you take on the DOE in court to discharge your student loans.  In my case I sought help, only to be told "we cannot help you" or we do not do student loan bankruptcy.

In my research, I found that most of the cases that resulted in a discharge were those filed by the debtor who acted as their own attorney, e.g. Pro Se. I won without any representation! Besides I had no money to pay for a lawyer - they charge close to $600.00 per hour! Preparing my case took months of work - I can not imagine what I would have paid a lawyer to prepare my case?

#5) Learn to be your own attorney!  It is not difficult - I did it and you can too!  The courts even allow you to represent yourself - and in some cases are more apt to rule for you if the defending attorney is seen as the aggressor. 

The secret is to read and re-read those cases!  Learn the details of the case - see how they are laid out - go on the internet and find out if there are cases that have been ruled on in your area.  One source for help in bankrupting your student loans is a book published a few years ago by Chuck Stewart

For cases to read there are several web sites. One I pulled up and have used in the past is one published by the ABI (American Bankruptcy Institute).  They publish the "opinions" post trial or hearings, these opinions are the written case summaries that the Judge writes to describe his ruling in a bankruptcy discharge.  When I want to read cases about student loan discharges I type in: "bankruptcy 11 USC 523(a)(8).  The ABI was listed when I did this under "opinion summaries for cases citing 11 U.S.C.§523(a)(8)" and the ABI Opinions link is: http://opinions.abi.org/11-usc/523-a-8

Hint: to type the symbol § (which means paragraph or section or subtitle), hold down the Alt Key and type 0167 on the number pad.  You will need this symbol later when you prepare your case.

Now when I began to read case opinions I looked for cases within 11 U.S.C. §523(a)(8), both the winning and the losing outcomes.  You need to know why cases were won or lost!

I mentioned Chuck Stewart.  Stewart has written a book about bankrupting student loans plus he maintains a web site here: http://www.bankruptyourstudentloans.com/  I purchased his book and found it very useful although it is a bit dated now.

As you begin to learn the ins-and-outs of student loan bankruptcy, I cannot stress how important it is to begin immediately to create a separate file on your PC to keep all of the things you are going to need and use later. Several sub categories should be made with folders within a main file.  Keep a file just for internet links as you will want to refer back to them from time to time.

Buy a good sized thumb drive and keep that just for the bankruptcy information.  And keep the information on more than one drive so you do not lose anything over time.

OK it is late, Panera Bread is closing and my little internet office place is going to ask me to leave soon... So I will close for now!  But I will pick this up next week with some more steps to help you prepare to discharge your student loans!

Meanwhile, if you enjoy these articles, let me hear from you.  All comments are welcome, any questions will be answered.  If you have included a comment it is monitored and I will review it before posting.  If you do not want it posted just say so.  If you include a request for an email answer I will respond direct by return email and not post your email address here It will remain private.  Thanks!

God Bless!  Richard Allan Precht