Paying off student loans (in and out of bankruptcy)

Most Americans need help paying off student loans. If you’ve looked for options, you’ve likely been disappointed with the options you find to pay off your student loans. If you’ve listened only to what your servicer tells you, there are no other options than paying off student loans off ‘in full’ ‘forever’ ‘or else…’

While it’s still true that student loans are non dischargeable in bankruptcy unless you can show undue hardship, the Feds do have an option for those paying back subsidized loans. Income-driven loan repayment is the one legitimate option for paying back student loans–why don’t more borrowers know about this amazing program?

Income-driven student loan repayment should be your next click if you are paying off student loans.

Please educate yourself about your options. The first step is determining which of your loans are federally subsidized and which are private (unsubsidized loans).  The distinction is whether the federal government is paying 1/2 the interest, or if you are paying all of it. Assuming you have loans that are federally subsidized, those will be ones that you can put into an income-driven loan repayment.

There are currently three options for income-driven loan repayment–Pay as You Earn, Income Based Repayment and Income Contingent Repayment.   Please let the federal website tell you which you qualify for–and if you are reading this during 2015, check back again later in the year.  The Obama administration appears to be making pay as you earn open to more borrowers (e.g. not tying eligibility to when the loans were incurred).

These programs work whether or not you are in bankruptcy.  If you are considering filing Chapter 7 or Chapter 13, you’ll continue whatever income-based repayment you qualify for.  Filing bankruptcy won’t interfere with your eligibility for income-driven plans, and the plans are designed to not interfere with the administration of a Chapter 13 plan.

Some of my observations about these programs in the five years since they were created by President Obama: The program is only rarely covered by the media.  Servicers don’t tell borrowers that these plans are available when they call to collect.  The programs are not really publicized on servicer websites–you’ve got to search for them ‘if you are having difficulty paying…’. College and Universities don’t push students to look for it (or to manage their debts).  The programs remain the great unused option, which is really a shame since it would help so many borrowers.


No stripping second mortgages Chapter 7 bankruptcy

Chapter 7 and Chapter 13 bankruptcy clients with second mortgages always ask about stripping second mortgages in bankruptcy. Up until this week I could counsel clients about stripping second mortgages either in Chapter 7 bankruptcy or Chapter 13 bankruptcy.  No longer.

Though Atlanta’s real estate recovery is real, if you have a house with more than one mortgage and you live in metro-Atlanta (e.g. not ‘in-town’), there is a strong chance that your home is still worth less than the value of both mortgages. Things are better, but you are still underwater.

With its unanimous vote this week, the Supreme Court issued its long-anticipated decision saying No to stripping second mortgages in Chapter 7 bankruptcy.  The case is In re Caulkett.

The decision closes the door on the bankruptcy court’s power to remove second mortgages from real estate that is underwater, and yes, it is a defeat from a consumer’s perspective.  But this anti-consumer outcome was widely anticipated, and was not a surprise.

Stripping second mortgages still allowed in Chapter 13

Though we expect a Big Mortgage challenge to stripping in Chapter 13 to follow, this decision does not currently affect our ability to strip mortgages in Chapter 13.

This is because the part of the code that gives us the power to strip mortgages in Chapter 13 is based on much firmer legal ground.  The code section that was used to strip mortgages in Chapter 7 cases was based on very shaky legal ground.

This decision also does not undo strips of second mortgages obtained in Chapter 7 cases that are already completed.

Why does this change in the bankruptcy code matter to you?

The good news is that you can still achieve a fresh start and you can still get relief from your underwater mortgage. The bad news is that it’s only via Chapter 13.  Chapter 13 bankruptcy is a much longer and potentially much more expensive process. In Chapter 13 your attorney’s experience and ability to get results makes all the difference.  Are you hiring the person will lead you to a successful discharge, or is the attorney you’re interviewing only going to cause you frustration and lead to a dismissal?

How much access will you have to your Chapter 13 attorney?  How experienced is your attorney? Do you feel like your attorney is acting in your best interests? These are all questions to think about when you interview the person who you are thinking about hiring to represent you.

First step to discharging taxes in bankruptcy–IRS tax account transcript

What’s the first step in discharging taxes in bankruptcy? Will your IRS and/or Georgia state taxes be discharged in bankruptcy?

Those are great questions–the answer depends entirely on how old the tax debts are and how the IRS / Georgia Department of Revenue have processed and classified your returns.

When you consult with me about taking that first step in discharging your taxes by filing Chapter 7 or Chapter 13 bankruptcy, the first step we will likely take is analyzing your tax account transcript for each year where you think that you owe taxes. The tax account transcript is used to analyze whether taxes are discharged in bankruptcy because it contains all the codes that tell us how the IRS has classified and processed the debt.

Timing is everything when it comes to analyzing tax dischargeability.  File too soon and you may be cutting off your ability to discharge your taxes. That means you need advice from an attorney who has the knowledge and training to advise you about your transcripts.  You’ll want to know for certain whether your bankruptcy discharges your taxes before you file.

The good news is that you can obtain the tax account transcript for free from the IRS. Up until late May 2015, one could actually download the tax account transcript directly from the website.  IRS ended that feature because hackers were using the download to illegally obtain information from returns–and though we expect IRS to resume downloads at some point in the future, for now you can request a tax account transcript from and IRS will mail the transcript to you.

Then it’s my turn to analyze each tax year and explain your options to you about filing bankruptcy to discharge taxes.

Could you avoid filing bankruptcy by filing a complaint with the Feds?

Occasionally I meet with clients who have one or two issues that are the only reason they contact me to talk about filing Chapter 7 or Chapter 13 bankruptcy.  For these ‘single issue’ bankruptcy clients It’s most commonly a GIANT student loan, but I’ve also met with clients who are struggling with one or two payday loans or title pawns,  or debt that stems from a voluntary surrender of a car / repossession, or tax debts.

Much of the time, people who call me know that their debts are valid, and these clients ultimately end up filing either Chapter 7 bankruptcy or Chapter 13 bankruptcy.

I also talk to my clients about whether the debt is truly valid–and if there is reason to believe it’s not, then the most important resource I’ve found to help ‘single issue’ clients avoid filing bankruptcy is the Consumer Financial Protection Bureau–and the best part of this website is the place where one can go log a COMPLAINT against the creditor you know has acted illegally.

Do you have debts that are driving your nuts, and where you think that the servicer is going too far with their collection attempts, or where you think the debt is not yours, or you think that the debt is too old to be collectable? If you could make that issue go away, would you still think about filing bankruptcy?

Consider filing a complaint.  The creditor must respond to the CFPB inquiry within 15 days and you’ll know at the end of that investigation whether you are truly on the hook.

Of course, I am always happy to talk to you about your debts too.



GREAT news about increased ‘wildcard’ exemption in Georgia

Clients who are contemplating filing bankruptcy have long been subjected to Georgia’s exceedingly low ‘wildcard’ exemption of $600, plus up to $5,000 of any unused Georgia homestead exemption. Thanks to State Senator Jesse Stone, who authored the bill, these wildcard limits DOUBLE effective July 1, 2015.

The increase to the wildcard exemption mean that each person filing will be able to protect $1,200 plus up to $10,000 of any unused homestead exemption.

I imagine that those filing Chapter 7 and Chapter 13 bankruptcy will immediately feel the positive effects when they are better able to save their assets that are otherwise subject to the trustee’s power to collect and sell.  I’m thinking of: earned income credit-driven tax refunds, flexible spending accounts, stock accounts, valuable personal property (like guns, collectibles, jewelry), paid off vehicles, etc.  Assess like these often need these exemptions and they are all better protected now.

It’s been twenty plus years since the last increase to the state exemption, so an increase has been long overdue.

If you are reading this and thinking about how to protect your assets, please remember that though the limits are improved, it’s still easy to make mistakes that can cost you the thing you are trying to protect.  It’s worth your time to find an attorney who will has the skills to help you, and who will take the time to advise you before you file.