Hoverson Law Offices, P.A.

If your student loans are in default, you should immediately take action before the CARES Act expires to get them out of default to avoid wage garnishment and tax refund seizure. One process to get the loans out of default is called "rehabilitation". If your student loans are not in default, you should see if they qualify for any "income driven repayment" plans.

Federal student loans that are owned by the U.S. Department of Education are covered under the CARES Act. This includes Direct Stafford Loans, Direct PLUS Loans for parents and graduate students, and Direct Consolidation Loans. It also covers two other kinds of student loans, but only when they’re not owned by commercial lenders: Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans. Any private student loans or loans that aren’t federally owned are not covered under the act.

This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.

Chapter 13, which is often referred to as the “wage earner plan”, eliminates debts upon completion of a payment plan. It allows debts to be reorganized in a way that makes it easier to be paid back by the debtor in a plan over a period of 3 to 5 years. Filing for Chapter 13 bankruptcy stops interest from accruing on most types of debts and allows the debtor to pay off a percentage of the original amount, while eliminating any remaining balances at the completion of the plan. Chapter 13 also stops foreclosures on home mortgages and can be used to prevent an automobile from being repossessed. It can also be helpful in consolidating credit card debt, medical bills and other types of unsecured debt.

In Chapter 7 bankruptcy, most debts are discharged, and the accounts are closed. This includes most credit cards, personal loans, medical bills and unsecured debt. There are specific types of debts that are never eligible for elimination in bankruptcy, including child support, spousal maintenance, divorce property settlements, fraudulent debts, and specific types of student loans. To be eligible for a Chapter 7 filing, you must not have been granted a Chapter 7 discharge in the last 8 years and you must prove that your family’s income falls below the median income for a family of your size. It typically takes about three months to complete a Chapter 7 filing once it has been filed in bankruptcy court.

The test for “undue hardship” used by Minnesota bankruptcy courts is called the “totality of the circumstances” test. Three factors are evaluated to determine undue hardship under this test: (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s and her dependent’s reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case.

Often times the private student loan is easier to resolve after the creditor brings a lawsuit because the consumer now has access to all of their legal rights under the law. It also means the creditor (the lender that issued the private loan, or another company that acquired the loan) has the burden of proving the debt. In many cases this is difficult for the creditor to do. The potential defenses in the private student loan lawsuits include: The statute of limitations has expired. The creditor cannot prove they own the loan or how they acquired it. The creditor cannot provide evidence to support the balance sought in the lawsuit. The creditor has improper paperwork. The creditor cannot get their documents in evidence because they do not have a competent witness to testify.

Public Service Loan Forgiveness This program is available to borrowers who work in public service jobs (government entity or 501(c)(3) non-profit organization) for 10 years and repay their loans through an eligible repayment plan. The remaining balance is then forgiven after the 10 years of service is completed and the forgiven balance is NOT taxed. Teacher Loan Forgiveness Teacher loan forgiveness includes forgiveness of up to $5000 to individuals who are full-time teachers over 5 consecutive years in certain schools that serve low-income families. For borrowers who teach 5 consecutive years as math or science teachers in eligible secondary schools or as special education teachers in eligible elementary or secondary schools, the forgiveness limit is $17,500. Borrowers with a loan balance prior to October 1, 1998 are not eligible.

Administrative discharge, also called statutory discharge, cancels the entire student loan debt. The five (5) ways to discharge a federal student loan are as follows Closed School- The school’s closure while the student borrower was still enrolled. False Certification- The school’s false certification of the student borrower’s eligibility, including false certification due to forgery or identity theft. Unpaid Refund- The school’s failure to pay a refund owed to a student borrower. Disability- The borrower’s permanent and total disability. Death- The borrower’s death. All of the above administrative discharges have detailed and specific requirements which must be met to qualify for such a discharge. It is best to consult with a qualified student loan attorney to understand the requirements and regulations.

Deferments and forbearances are only temporary fixes. They are used mainly to keep the loan out of default. A deferment occurs when the lender temporarily allows the borrower to stop making payments. For subsidized loans, the federal government pays the loan’s interest while the loan is deferred. For unsubsidized loans, the interest continues to accrue during the deferment period. Deferment rights vary depending on the type of the loan and when the loan obligation was incurred. Deferments are usually applied for with a written application. You may qualify for a deferment if you meet one of the following conditions: At least half-time school enrollment Graduate fellowship study Rehabilitation training program Unemployment Economic hardship Military service and post-active-duty If you do not qualify for a deferment, you may qualify for loan forbearance to temporarily stop making your payments.

Income Contingent Repayment (ICR)- This plan factors both the borrower’s income and balance of the loan to calculate a monthly payment. The repayment term can be up to 25 years and any remaining balance at the end is forgiven. Income Based Repayment (IBR)- This plan calculates the borrower’s monthly payments based on 15% of your disposable income after comparing your AGI (Adjusted Gross Income) to the poverty level for the family of equal size. The repayment term is 25 years and any remaining balance at the end is forgiven. Pay As You Earn (PAYE)- This plan is similar to IBR, except monthly payments will be lower because the formula bases your payment on 10% of your disposable income rather than 15%. Furthermore, the repayment period is 20 years at which time any remaining balance is forgiven. The New IBR- This is exactly the same as PAYE, except it only applies to borrowers with no balance prior to July 1, 2014.

You want to avoid defaulting on your student loans because the consequences are significant. Most student loans are considered in default when the borrower fails to make required payments for 270 days. When the loan goes into default it is assigned to a debt collector, which can then add collection fees of up to 25% of the loan balance. Default loans also subject the borrower to garnishment of 15% of your wages without any judgment or court action, seizure of your tax refunds, seizure of 15% your social security benefits, and denies you eligibility for new education grants or loans. There are two methods to “cure” a default loan- consolidation and rehabilitation.

No. Nevertheless, in most instances the husband and wife will file a joint case if they both have debt. A situation where a joint case would not be warranted is where one of the spouses has little or no debt. However, even where one spouse files without the other, the bankruptcy laws require that both spouses’ income and expenses be analyzed for purposes of determining whether you qualify for Chapter 7 or Chapter 13. Also, the bankruptcy filing only protects and discharges the debt to the person filing the case. So if there is a joint debt, the spouse who does not file, is still legally responsible to pay the debt.

If your business is struggling financially, you need to know what alternatives are available to resolve your financial problems. Depending upon the structure of your business (sole proprietorship, partnership, corporation, or Limited Liability Company), an out of court workout plan, Chapter 11, or Chapter 13 may be available to you to rehabilitate your business. Early legal counseling from a Minnesota business bankruptcy attorney and financial planning may help save your business. If the business is shutting down and ceasing operations, then a Chapter 7 may be the appropriate course of action. Also, if you as an individual personally guaranteed the business loans, you may be forced to file an individual Chapter 7 or Chapter 13 to eliminate the personal guarantee.

Under the Federal Fair Credit Reporting Act, a credit bureau can report the filing of any bankruptcy for ten years from the date the case is filed. Generally, a Chapter 13 is reported for seven years from the date of filing, so long as the case was completed and a discharge was granted. In a Chapter 13 case, you cannot incur any new debts, with some exceptions, until your case is completed. As a rule of thumb, most mortgage companies will not grant a new mortgage to you until two years after the bankruptcy filing. In many instances after a Chapter 7 filing and discharge, you can obtain credit because the creditors know you cannot file Chapter 7 for another eight years, and generally you have little or no debt since the present Chapter 7 discharged all or most of your debt, making you a good credit risk (assuming you have monthly income and ability to pay the new debt).

No. Federal law prohibits employers from terminating the employment of, or discriminating with respect to employment against, an individual who files either a Chapter 7 or Chapter 13.

Generally, you will have to appear in Court only one time. Your Chapter 13 or Chapter 7 law firm will do the rest (we handle both). This court appearance is held approximately one month after your case has been filed and is called “The First Meeting of Creditors”. At this hearing, you will be put under oath and questioned by the trustee about the information contained in your petition and schedules, including your assets and liabilities. In most cases, no creditors appear for this hearing.

Generally, in a Chapter 13 case you will not lose any property, even if it is not exempt. In most Chapter 7 cases, you are able to exempt (protect) all your property. Under the laws of Minnesota, and under the federal laws, certain property is declared exempt, and out of the reach of your general creditors. It is the exempt property that you will get to keep after your bankruptcy. As your personal bankruptcy attorney, we will advise you as to whether or not you have any nonexempt assets which you will either have to surrender to the trustee, or buy back from the trustee. In most cases, you will be able to keep your home, automobile, retirement accounts and pensions, household furnishings, and all your property by claiming either the state or federal exemptions. If the property is security for the loan (i.e. home with a mortgage; car with a loan) you will almost always need to keep making the payments to keep the property; or, you can surrender the property to the creditor and the debt

Both a Chapter 7 and Chapter 13 case filing stops foreclosures on mortgages (homestead, rental, and commercial property mortgages) so long as the sheriff’s sale has not been held. Chapter 13 also allows you to pay back the mortgage arrears on a homestead mortgage in your chapter 13 plan over an extended period of time, while you pay the regular monthly mortgage payments after the case is filed

Steve, Please call me to discuss this matter, Sincerely, Michael Hoverson (612) 349-2728