Monthly Archives: February 2012

“What do I do when I can’t make my student loan payments”

Posted on by
3

I am starting to get this question more frequently than any other.  There appears to be no student loan bailout in the near future, but there are some avenues available. These options include:

  1. Delaying payments on your loans through forbearance or deferment programs,
  2. Getting your loan canceled and eliminating all payments,
  3. Discharging your loan through bankruptcy proceedings,

1. Student Loan Deferments/FOREBEARANCES

Deferments

In some situations, you may be able to obtain a deferment on your student loan payments. These deferments allow you to stop making payments for a certain period of time if you can show that you qualify. For instance, you may be able to get a deferment if you can show economic hardship, are returning to school, are unemployed, or looking for a job.

Depending on your type of loan, the deferment will not only allow you to stop making payments on the principal, but it will also stop interest from accruing on the unpaid balance. For other types of loans, you are only allowed to defer the principal of the loan, meaning that interest on your loan will continue to increase during the time you are not making payments. You will need to figure out what types of loans you have, as well as where you got them from, in order to see what kinds of deferments you are eligible for.

In most situations, you will be able to defer payments on your student loans if you meet one of the conditions that are described below (see the last section of this article titled “Conditions for Deferments on or Cancellations of Student Loans”) and you are not currently in default on your loan. In some situations, you may even be able to qualify for a deferment even when you are in default – this is called a retroactive deferment.

Like many things in life, deferments are never automatically put in place. In general, you must apply for a deferment. To do this, you should contact your loan holder and get the necessary paperwork. It can be a lot of work to get everything done correctly, but you should take the time and do it properly if a deferment will help you.

To get the necessary paperwork, you should contact your loan holder and talk to them about the various types of deferment that you think you may qualify for. Then, you should ask them to send you the right forms that you need to fill out. Doing this may help keep the loan holder from calling you about past due payments.

 Forbearances

If you are unable to qualify for a deferment, you may be able to postpone payments on your student loans by setting up a loan forbearance. A loan forbearance can generally be thought of as your loan holder allowing you to stop making payments for a set period of time. However, you should keep in mind that interest will continue to accrue during a forbearance so your loan balance will be higher when you come out of the forbearance. Generally, forbearances are easier to obtain than deferments because they are not linked to the type of student loans you have and they are not covered by the laws and rules that apply to deferments and cancellations of student loans.

Generally, you may be able to obtain a forbearance for a variety of reasons. For example, if you have suffered from poor health or unforeseen personal problems, you may be able to get a forbearance. Also, if you foresee that you will not be able to pay back your student loans within the period for repayment (generally 10 years), or your monthly payments are more than 20% of your income each month, you may be able to get a forbearance. Loan forbearances are generally granted for up to one year at a time and you may be able to get a forbearance even if you have defaulted on your student loans.

In order to apply for a forbearance, you should contact you loan holder and tell them about your inability to pay. You will probably have to fill out some forms, either online or via mail, to apply for a forbearance.

2. CANCELLATION

Death

In the event of the borrower’s death, or on or after July 23, 1992, the death of the student for whom a parent received a PLUS loan, the obligation of the borrower and any endorser to make any further payments on the loan is discharged.

To verify a borrower’s death, the servicing agency must have the original, certified copy, or clear, accurate, and complete photocopy of the original or certified death certificate. The U.S. Department of Education cannot accept a faxed copy.

Total and Permanent Disability

For total and permanent disability discharge applicants, if a physician (doctor of medicine or osteopathy) certified that you are totally and permanently disabled and you meet certain other requirements during a three-year conditional discharge period your loan(s) may be discharged. You may request a “Discharge Application: Total and Permanent Disability” from our the Department of Education’s forms request page.

If you are a veteran, you will be considered totally and permanently disabled for purposes of this discharge if you provide documentation from the U.S. Department of Veterans Affairs showing that you have been determined to be unemployable due to a service-connected condition. If you provide this documentation, you are not required to have a doctor complete Section 4 of the discharge application or provide any additional documentation related to your disabling condition. Veterans who qualify under this standard are eligible for immediate discharge and are not subject to the standard discharge process that entails a three-year conditional discharge period.

For more information, please visit: http://disabilitydischarge.ed.gov.

Bankruptcy and Student Loan Discharge

Another option that you have when you cannot pay back your student loans is to try to have your loans discharged through bankruptcy. However, this is very hard to accomplish under current law. Generally speaking, your student loans can only be discharged through bankruptcy if you can show that the burden of repaying your student loan would impose a severe hardship on you. This is quite a tough standard to meet. Courts generally consider a number of factors when you try to make this argument such as your age, health condition, income, expenses, and the length that your income problems are likely to persist.

To find out more if your student loans would qualify for discharge in a bankruptcy contact St. Louis bankruptcy lawyer Tim Powderly.

 

 

Information Courtesy of

http://bankruptcy.findlaw.com/bankruptcy/more-bankruptcy-topics/when-you-cant-pay-student-loans.html

 

25 Billion Dollars! Am I gonna see some of that?

Posted on by
2

A $25 billion settlement has been reached between the federal government and 49 states & the nation’s five largest loan servicers Bank of America, JPMorgan Chase, Wells Fargo, Citigroup . The servicers have agreed to provide mortgage reductions, refinancing and other loan modification help to homeowners hurt by the housing collapse.

However, the settlement does not apply to loans owned by government-controlled Freddie Mac and Fannie Mae — agencies that hold about half of the nation’s mortgages.

Read the article below to understand what this settlement may mean for you.

http://www.foxbusiness.com/personal-finance/2012/02/09/what-mortgage-settlement-means-for-homeowners/.

If your interested in learning how this might affect a pending or ongoing bankruptcy contact St. Louis bankruptcy lawyer Tim Powderly.

What Income Taxes can be eliminated in Bankruptcy?

Posted on by
3

The Basics of Taxes and Bankruptcy

Bankruptcy is begun by filing a “petition” in bankruptcy court. There are two varieties: “Straight bankruptcy” liquidates debts (called “Chapter 7“), including some, or all income tax debts. “Reorganization Plans” (called “Chapter 13“), force a payment plan for any kind of taxes on the IRS through a bankruptcy trustee. And, it is sometimes possible to reduce tax bills in a Chapter 13 plan similar to an Offer in Compromise.

I’ll explain the two types in more detail. First, let’s look at an immediate impact of filing bankruptcy on the IRS. This is the legal protection to debtors called the “automatic stay.” The moment bankruptcy is filed, all creditors — including the taxman –are stopped cold. The only way any collector can overcome the automatic stay while your bankruptcy case is still active is to apply to the bankruptcy court. Judges rarely will lift a stay for the IRS, and then it must prove some kind of fraud is being perpetrated by the bankrupt taxpayer.

The primary downside to Tom and Martha in filing bankruptcy is that it gives additional time for IRS to collect the debt. If they go into bankruptcy and emerge from the process still owing the IRS, it gains extra time to collect the balance. This could happen if the Taxpayers had some, but not all, of their taxes erased in a Chapter 7. As you know, the IRS normally has a total of ten years to collect taxes, penalties and interest. Once a bankruptcy case is over, the IRS gets whatever time remained on the original ten years, plus the time the bankruptcy case was pending. plus an additional six months. (Chapter 7′s usually take about 3 to 6 months, start to finish.)

The following information will provide a good basis for analyzing the dischargeability of your tax debt, but please contact a St. Louis bankruptcy attorney for a consultation on your rights under the bankruptcy code.

Taxes that can be wiped out in a Chapter 7 “Straight Bankruptcy”

In Chapter 7 bankruptcy, the court erases an obligation to pay most or all debts. However, some debts are “non-dischargeable.” Income taxes can be discharged in a Chapter 7 bankruptcy but only if all of the following tax code rules are met:

1. The 3-Year Rule: The tax return on which the tax debt arises must have been due at least three years before you file for bankruptcy. This usually means April 15 of the year the return was due. If an extension was filed, then it means August 15 or October 15 of that year, or beyond to the actual filing date. If the 15th falls on a Saturday or Sunday, the return wasn’t due until the following Monday.

and

2. The 2-Year Rule: The tax return was filed at least two years before the bankruptcy (having the IRS file a substitute for return doesn’t count).

and

3. The 240-Day Rule: The taxes were assessed by the IRS at least 240 days before filing.

and

4. Lack of Fraud/Willful Evasion: There was not a fraudulent tax return or a willful attempt to evade paying taxes.

and

5. Income Taxes Only: Taxes other than income, such as payroll taxes, a 100% penalty, Trust Fund Recovery penalty, fraud penalties, or several other unusual types of taxes are by law excepted from bankruptcy discharge

Federal Taxes that Don’t Qualify for Chapter 7 Discharge ——————————————————-

A Chapter 7 bankruptcy discharge of income taxes wipes out the personal obligation to pay the tax. A tax lien recorded before filing for bankruptcy remains. This means that after Tom and Martha’s discharge, the IRS has dibs on any property they had when their bankruptcy was filed. (If Tom and Martha don’t own real estate or have a retirement account, this probably won’t hurt them). However, tax liens survive a bankruptcy discharge only to the extent of the value of the taxpayer’s equity in the property. For example, a lien of $100,000 was recorded. Tom and Martha had $5,000 of property when filing Chapter 7. The value of the tax lien is reduced to $5,000.

Taxes and Chapter 13 Bankruptcy

Chapter 13 is the most frequent bankruptcy used by people with tax debts. It is a debt payment plan, with a monthly payment to a court-appointed trustee. Chapter 13 bankruptcy repayment plans are for a minimum of three years and a maximum of five years. Here are six tax tips about Chapter 13:

1. Debts, including some taxes, may not have to be paid in full, in the discretion of the bankruptcy judge. The debts are referred to as “crammed down.” To be discounted, taxes must be (a) income taxes; with (b) the returns due more than three years before filing and (c) taxes were assessed by the IRS at least 240 days ago.

2. To be crammed down, the IRS must not have recorded a lien (or there is no property for that lien to attach to). Example. The IRS has recorded a $50,000 tax lien against Doris who files Chapter 13. Doris owns $10,000 worth of household goods and furniture, and a car worth $5,000. So, the taxes are secured for $15,000, which may be paid at a discount, if the judge is convinced this is all Doris has the ability to pay on a monthly basis.

3. If a tax return was due less than three years ago, or the taxes were assessed less than 240 days ago, or the taxes are not income taxes (such as for payroll), they are “priority” taxes. Priority taxes must be paid off in full through the plan. Nevertheless, Chapter 13 stops interest and penalties the moment it is filed.

By contrast, under an IRS Installment Agreement (IA), interest and penalties continue to run. So, paying $1,000 per month under an IA for $60,000 tax bill, leaves a balance of at least $30,000 after five years. The same payment in a Chapter 13 plan pays off the tax debt in full! In effect, Chapter 13 forces a repayment plan on the IRS. The IRS cannot get anything more than the bankruptcy judge approves.

The IRS cannot restart collection activities — seizures of property or wages — as long as a Chapter 13 plan is underway. This is a way to get around an unreasonable Revenue Officer who won’t agree to a fair IA. In most Chapter 13 plans, the monthly amount paid to the IRS is less than the rejected IA proposal.

4. Tax penalties may be greatly reduced by the court. Even fraud penalties, never dischargeable in Chapter 7, might be cut down in Chapter 13.

5. Unfiled income taxes may be paid a fraction on the dollar. Though actual filing of tax returns more than two years ago is a requirement to discharge taxes in a Chapter 7, there is no “2- Year Rule” in Chapter 13.

6. Tax Liens are extinguished once the Chapter 13 plan has been completed.

To qualify for Chapter 13, the debtor must have a steady stream of income. It need not be wages — Social Security, pension payments, and receipts of an independent contractor all qualify. Unsecured debts –credit cards, doctor bills, student loans, and taxes that have not been recorded as a lien– cannot exceed $250,000. Secured debts–mortgages, car loans, or taxes for which a lien was recorded–cannot exceed $750,000.

The re-payment plan is submitted to the bankruptcy judge. A hearing is set for your creditors to come and object to your plan. The IRS rarely ever objects. The judge may make adjustments to the plan, before approving it. Then monthly payments are made to the court- appointed trustee, who in turn, pays the IRS and other creditors.

Please Contact St. Louis Bankruptcy Lawyer Tim Powderly for a free consultation about your rights under the bankruptcy code.

 

Information Courtesy of:

Frederick W. Daily, Tax Attorney,
John Raymond, Bankruptcy Attorney, and
Allan H. Rosenthal, paralegal.