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How to Postpone or Reduce Student Loan Payments

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By Attorney Sophia Dean

The Student Debt Crisis in Numbers

Photo of Sophia Dean - Attorney at The Orlando Law GroupThere are various reasons which prevent people from being able to make their student loan payments. As of 2019, Americans collectively owe over $1.56 Trillion in student loan debt. This is spread out by nearly 45 million individuals who are paying back their student loans. 

Out of this increasingly large group, there are, of course, individuals who will find themselves in circumstances which will prevent them from making their payments. These people are not alone. In fact, there are roughly 3.7 million student loans in deferment and 2.6 million in forbearance. The good news is that there are deferment and forbearance options which can alleviate some of this stress and allow you to get back on stable ground. 

What to Know About Deferments and Forbearances

While there are several options for individuals who are experiencing difficulty paying back their student loans, like income-based repayment, we commonly see deferments and forbearances. On the surface, these options may seem similar, but they actually have several differences which can make them more or less suitable for certain situations. Both allow you to temporarily stop making federal student loan payments or temporarily reduce the amount you pay. 

A key reason to look into these options is to help to avoid defaulting on your loans, which can cause significant consequences. 

Based on the type of loan you took out, your interest may accrue during this time. Because this will add to the total cost of the loan, it is important to be clear about these details. It is also important to make sure that you have completed the steps necessary to attain an active deferment or forbearance so you don’t miss payments and negatively affect your credit score. 

The important question is, Which choice is right for you?

What are the Differences Between Deferments and Forbearances?  

The most important thing to know about deferments and forbearances is that they are not one and the same. 

A Deferment can be an excellent solution for people experiencing certain circumstances. On particular loans, you may not be responsible for paying the interest that accrues during this period. 

Your lender or loan servicer may offer different deferment options based on your particular situation. For example, federal loans have the following deferment options:

●     Economic Hardship Deferment

●     Graduate Fellowship Deferment

●     In-School Deferment

●     Military Service and Post-Active Duty Student Deferment

●     Parent PLUS Borrower Deferment

●     Rehabilitation Training Deferment

●     Temporary Total Disability Deferment

●     Unemployment Deferment

A Forbearance is a period during which your monthly loan payments are temporarily suspended or reduced. If your particular situation includes financial hardship that prevents you from making loan payments even though you are willing, your lender may grant you a forbearance. During this period of time, the principal payments are postponed. The one caveat is that interest continues to accrue. 

You could potentially qualify for a forbearance if you are temporarily unable to make scheduled monthly payments for the reasons listed below:

●     Financial difficulties

●     Medical expenses

●     Change in employment

●     Other reasons acceptable to your loan servicer

Because the loans continue to accrue interest during the forbearance term, it is smart to continue paying at least the monthly interest. This method is helpful as it resolves any delinquency on the account. 

There are also two different kinds of forbearance—General and Mandatory.

Also known as a “discretionary forbearance”, a general forbearance can be requested due to financial difficulties, medical expenses, change in employment, and/or other reasons acceptable to your loan servicer. It is at the discretion of the loan servicer whether to honor this request or not, hence the name. These can be granted for periods of no longer than 12 months but can be requested again when this time expires. 

Mandatory forbearances MUST be honored by loan servicers as long as the individual meets the eligibility criteria. There are more options for eligibility for mandatory forbearances and each one has more specific qualifications and stipulations attached, but the major requirements are;

●     If you are serving in a medical or dental internship or residency program

●     If you are participating in a teaching service which would qualify you for teacher loan forgiveness

●     If the amount owed on your student loan is equal to or greater than 20% of your total monthly income 

●     If you qualify for partial repayment of your loans under the Department of Defense Student Loan Forgiveness program

●     If you are a recently activated member of the national guard but are not eligible for military deferment

As with discretionary forbearances, a mandatory forbearance is granted for a maximum of 12 months. However, this may be extended as long as you continue to meet the eligibility requirements. 

Postpone or Reduce Student Loan Payments Next Steps–How to Seek Out a Deferment or Forbearance

Both deferments and forbearances are excellent options for people struggling to pay their student loans due to temporary financial hardships. However, if your financial woes are likely to continue for an extended period of time, it may be a better option to change to an income-driven repayment plan. These are based on your discretionary income, size of your family and multiple other factors. If your loan is not repaid after 20-25 years, you may also qualify for student loan forgiveness as well. 

If your circumstances are likely to improve within a reasonable amount of time, it would be a good idea to consider a deferment or forbearance. It is important to remember that your loan servicer does not work for you. The best course of action is to use an outside source such as a well-versed attorney with expertise the variety of student loan options. They will assist you in deciding if a deferment or forbearance is the most applicable in your individual case. Having someone to trust can drastically help reduce the stress and worry associated with dealing with student loan debt. 

For the past ten years, The Orlando Law Group has earned a reputation as the Orlando-area law firm that cares about its clients and the communities it serves. Offices located in Waterford Lakes, Altamonte, Lake Nona, and Winter Garden. For more information, visit www.TheOrlandoLawGroup.com.

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student loans in Chapter 13

What happens to student loans in Chapter 13 bankruptcy?

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The phrase “student loans” strikes fear in the hearts of most people nowadays. Many are facing high payments coupled with employment that doesn’t pay as expected or as the student had hoped it would. Now what? Chapter 13 bankruptcy may be an option. 

Why student loans in Chapter 13 bankruptcy could provide relief.

It’s a well-known fact that except in rare circumstances, student loans cannot be discharged in bankruptcy. However, if you are struggling to make your student loan payments, filing for Chapter 13 bankruptcy will allow you to reduce your monthly obligation by combining all of your unsecured debt into one category. Your payments to your unsecured debt are then based off what you can afford to pay, given your other living expenses and assets. 

Keeping student loan companies from garnishing your wages.

This can be extremely beneficial for someone who is being harassed or having their wages garnished by their student loan companies. When you file Chapter 13, a hold goes on all creditors while you are in the bankruptcy which provides a 3-5-year repayment plan. You can still pay back some of your student loans in Chapter 13 bankruptcy, but it is only based on what you can afford. If you cannot afford your regular student loan payments, lowering your obligations by paying a smaller amount through your Chapter 13 plan, may be the way to go. This allows you time to increase your income, deal with your other unsecured debt, such as credit cards and medical debts so that your payments to the student loans are more affordable after your bankruptcy. (Keep in mind the interest continues to accrue while you are in the bankruptcy). 

Increasing debt limits could help Graduate or Doctorate level degrees with student loans in Chapter 13 bankruptcy.

It is not uncommon for Graduate or Doctorate level degree to come with $250k worth of student loan debt which only increases when payments are put into income-based payments which barely pay the interest. Debtors may find themselves nearing the debt limits for a Chapter 13 bankruptcy between student debt and long overdue credit card debts or Judgments. The good news is that beginning April 1, 2019, the debt limits in a Chapter 13 Bankruptcy will increase to $419,275 for a debtor’s noncontingent, liquidated unsecured debt. This opens the door for more people to qualify for such a beneficial option when dealing with unmanageable debt. If you think Chapter 13 might be an option to help you deal with mounting student loan debt, contact me for a free consultation.

About Sophia Dean

Sophia Dean is an experienced attorney who focuses on bankruptcy and foreclosure defense. She has represented debtors in all stages of debt collection. She is also the co-chair of the Orange County Bar Association’s Bankruptcy Committee. She can be reached by phone at (407) 512-4394, 

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bankruptcy attorney Orlando

Bankruptcy Might Not Be as Difficult as You Think

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How Bankruptcies Work

By definition, bankruptcies are legal and financial arrangements designed to provide a person or business with temporary relief from their debt. The bankruptcy gives the individual or company (referred to as the debtor) time and flexibility to better organize their ability to pay their debt and other financial obligations. Part of the process typically includes the creation of a plan to fulfill certain financial obligations. There are also specific situations where debts are entirely eliminated. 

Clearly, bankruptcies should be considered as an option after other opportunities to relieve the debt have been explored. For example, it is usually advisable to attempt to negotiate with creditors before considering bankruptcy. 

While bankruptcies are incredibly complex, there are things that individuals and businesses can do to make the process less complicated. It’s critical that those considering bankruptcies go through a detailed planning process. Also, a recommended first step is enlisting the professional help of an attorney and a financial advisor.

What is bankruptcy protection?

In the US Legal System and in bankruptcy court there is an essential difference between bankruptcies and bankruptcy protection. Put simply; bankruptcy is the process a person or business follows when they can no longer satisfy their debts. Bankruptcy protection refers to the condition where. During and after the bankruptcy, a company or individual has financial protection from their creditors. 

What steps should I take before filing for bankruptcy?

When preparing to file, the more organized you are, the easier things can be for you and your attorney. Here are the efforts we recommend doing, and in some cases, not doing, as you prepare. 

Do: Determine the type of bankruptcy you should file. Bankruptcies come in several types, including Chapter 7, where most of your debts are forgiven and Chapter 13 which involves restructuring your debt into a manageable payment plan. Your lawyer is the best source of advice on determining which makes sense for your situation. Your lawyer may have you take a Bankruptcy Means Test to assess your ability to pay your debts. The results of this test could eliminate your qualification for filing Chapter 7 bankruptcy.

Do: Enroll in a credit counseling course. You may be required to take a credit counseling course either in person or online. Work with your attorney to determine which is best for your unique circumstances.

Do Not: Go on a spending spree. Many people inaccurately believe that all debt will be forgiven when you file for bankruptcy. The reality is that all of your debt will be examined and an appropriate course of action will be determined. When your debt is reviewed, the bankruptcy court will become aware of any significant spending you might have done before filing. A large amount of what could be seen as unnecessary spending might not work to your advantage. 

Do Not: Conceal the truth. Ultimately, the only way to get out of an impossible financial situation is to be truthful and honest about how you got there. When you work with an attorney, the more they know about your situation, the better they will be able to help you. 

Can bankruptcies be avoided?

It is entirely possible for many people to avoid bankruptcy and bankruptcy court. The most significant benefit to avoiding bankruptcy court is that you will preserve a higher credit rating. One of the ways you can avoid bankruptcies includes working directly with your creditors to organize a plan to satisfy your debt. Another strategy might be to sell non-essential items that you own and use the money to pay off debt. There are other tactics that should be explored, working with an attorney can help uncover all options that might exist for you.

Do I need a lawyer to file?

Facing overwhelming debt can be a frightening experience and could be a source of embarrassment for many people. You might not want to share details with family and friends, and that’s ok. But you don’t have to deal with the situation alone. Because bankruptcies can be quite complex, it can be to your benefit to hire an attorney early on. The attorney can help guide you through the process, work with you on deadlines and paperwork, negotiate with your creditors, and help make the process easier than going at it alone.

Ready to speak with an attorney about your options? You can contact us to schedule a consultation.

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How Does Bankruptcy Affect Child Support Payments?

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The BAPCPA recognizes child support payments as financial support that is intended to maintain human life. Therefore, such monetary arrangements are highly prioritized and protected by the court system.

If your ex-spouse files for bankruptcy it is not a reason to worry. Bankruptcy will not eliminate child support payments, nor can it change the monthly amount you’re owed. What it will do is eliminate certain low-priority debt which will make it easier for your ex to make domestic support payments, including child support.

The attorneys of The Orlando Law Group are experts in both Chapter 7 and Chapter 13 bankruptcy, as well as Family Law. We stand at the ready to assist you through these processes and answer any and all questions you might have. Schedule a consultation today by calling 407.512.4394.

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What is Cram Down in Chapter 13 Bankruptcy

What is Cram Down in Chapter 13 Bankruptcy?

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A Cram Down in a Chapter 13 bankruptcy allows you to reduce the principal balance of a debt to the value of the property it is secured by. You may be able to save your car, investment real estate, or certain other properties, by taking advantage of a Chapter 13 Cram Down.

You are allowed to cram down certain secured debts. A debt is considered secured when your lender has a security interest in your property and can repossess it if you fail to make your loan payments. The most common examples of a secured debt are your mortgage and car loan. In a Chapter 13 bankruptcy, you can cram down your car loan, investment property mortgages, or other personal property (besides real estate) loans such as household goods and furnishings. You can’t cram down a mortgage on your principal place of residence.

Cramming down your loans through a Chapter 13 bankruptcy may also allow you to reduce your interest rate and stretch your payments out over a longer term in order to lower your monthly obligations. The interest rate paid to secured creditors through your plan is determined by the bankruptcy court and will usually be lower than your note rate. In addition, since Chapter 13 plans last three to five years, you may be able to stretch out the payment period for the crammed down loan, resulting in lower monthly payments than if you were paying the loan outside the bankruptcy.

Congress has placed certain restrictions on when you can use a cram down to prevent people from cramming down their recent purchases. These restrictions depend on what kind of property is securing the debt you wish to cram down.

910-Day Rule – If you want to cram down your car loan, you must have purchased the car at least 910 days prior to the bankruptcy, that’s about 2 and a half years. This prevents people from buying a new car and cramming down the loan right soon after driving it off the lot.

One-Year Rule – This rule is similar to the 910-day rule for cars but it applies to all other personal property. It is usually relevant if you are trying to cram down loans on your household goods and requires that the goods be purchased at least one year prior to the bankruptcy before a cram down is allowed.

Investment Property Mortgages – Most courts require that loans that are crammed down be paid off within the three to five year length of your Chapter 13 plan. This creates a practical problem for most people who want to cram down their investment property mortgages because they do not have the means to pay off a mortgage (even a crammed down one) in this short of a time period.

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How Can You Tell When and If its TIme to Declare Bankruptcy

How Can You Tell When and If it’s Time to Declare Bankruptcy?

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How can you tell when and if it’s time to declare bankruptcy?

Some signs that that may be something you need to think about are:

  • You are only able to make the minimum payments on your credit cards
  • Bill collectors are constantly calling you.
  • You are using credit cards to pay for necessities, like groceries and gas.
  • You have thought about debt consolidation.
  • You are unsure how much you actually owe to creditors.

If any of these apply to you, you may need to look into your financial situation a little more. Bankruptcy is when you owe more than you can afford to pay. To determine where you are financially, inventory all of your liquid assets. You’ll want to include retirement funds, stocks, bonds, real estate, vehicles, college savings accounts, and other non-bank account funds. It doesn’t have to be exact, down to the penny, a rough estimate is fine.

After you know how much you have, get together and add up all your bills and credit statements. If the value of your assets is less than the amount of debt you owe, declaring bankruptcy may be one way out of a tough financial situation. However, bankruptcy shouldn’t be approached casually. It’s definitely not a simple, easy cure-all for out-of-control debt.

If you do decide that filing bankruptcy is the way you should go, you can go about it in one of two main ways. The more common route is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to order a person bankrupt. There are several ways to file bankruptcy, each with pros and cons. You may want to consult a lawyer before proceeding so you can figure out the best fit for your circumstances.

Some common reasons for filing for bankruptcy are unemployment, a lot of medical expenses, seriously overextended credit, and marital problems. A Chapter 7 bankruptcy liquidates your assets to pay off as much of your debt as possible. The money from your assets is given to creditors like banks and credit card companies. The record of your bankruptcy will stay on your credit report for ten years.

But Chapter 7 bankruptcies aren’t right for everyone. Almost all assets are taken and sold to repay creditors. If you own a company, a family home, or any other personal assets that you want to keep, Chapter 7 may not be the best option.

For people who have property they want to keep, filing a Chapter 13 bankruptcy may be the better choice. That allows you to pay off your debts over a period of three to five years. If you have consistent, predictable annual income, Chapter 13 offers a grace period. Any debts remaining at the end of the grace period are discharged.

Once the bankruptcy is approved by the court, your creditors have to stop contacting you. It can be hard to admit you need help getting out of debt. But that’s why our country has bankruptcy laws to protect not only the creditors, but you as well. If you have a high debt-load, it may be time to face financial facts. You could be doing yourself a disservice by not filing for bankruptcy. With a good lawyer and the right information, filing bankruptcy could give you the financial footing you need to get a fresh start.

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Chapter 13 Bankruptcy and Mortgage Modification

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What are your options if you cannot afford your current mortgage payment and you are a Chapter 13 debtor? Well, you can surrender your home or you can try to modify your mortgage payment. The option to modify your mortgage payment may be available to you in a chapter 13 bankruptcy before your case is confirmed if you cannot afford your current payment, want to keep your home, and you can afford to pay 31% of your net income to a modified mortgage payment.

What is mediation? Mediation is an informal meeting conducted to resolve disputes and reach an agreement. Mediation is conducted by a neutral intermediary. The mediator is selected by you and your lender. You would pay for the cost of the mediator. The mediator would help you and your lender reach a mutually satisfactory agreement. The mediator cannot force a lender to modify your mortgage. The mediator must be completely impartial.

If you are interested in a mortgage modification while in Chapter 13 bankruptcy you would need to request mediation to participate in the Mortgage Modification mediation program. If you qualify for the mediation program you or your attorney would need to complete and file a Motion for Referral to Mortgage Modification Mediation. The Bankruptcy Court will then enter an order requiring you and the lender to mediate within 60 days. You will have to pay $306.00 to your Chapter 13 Trustee before the mediation for the mediator’s fees. You and the lender will need to agree upon an approved mediator. If you cannot agree upon the mediator the Court will choose one for you. At least 10 days before mediation you will have to provide certain financial information to the lender.

Additionally, the lenders attorney is allowed $300.00 for fees to attend the mediation, which will be paid either through your Chapter 13 Plan or through the mortgage modification. If an agreement is reached at mediation, the Bankruptcy Court will still have to approve the agreement before it is enforceable.

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Do Married Couples Have to File Bankruptcy Jointly?

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No. Just because you are married doesn’t mean you have to file a joint bankruptcy. If one spouse has the majority of debt in his/her name, just that spouse can file bankruptcy. Many married couples have the debt in only one of the spouse’s names just in case something happens in the future; such as loss of employment or health issues. This allows only one spouse to file bankruptcy and the other spouse can maintain good credit.

However, when filing either a Chapter 7 or Chapter 13 bankruptcy, both spouses income is considered. For example, to be eligible for a Chapter 7 bankruptcy there is a 2 part test. First, there is the “means test”. This subjects debtors to an income based test. Both spouses income is considered. If the household income (both husband and wife) is below the state’s median income, then the debtor is not subject to the means test. Even if the debtor passes the means test, the debtor still has to pass a second test known as the “abusive test”. The United States Trustee or any creditor can move to have the case dismissed. The bankruptcy Court could dismiss the case if the Court finds that the debtor has the ability to pay back a significant portion of the unsecured debts. This is determined by looking at what the monthly income will be after filing bankruptcy and what the household expenses are. Both spouse’s income and expenses are considered.

In a Chapter 13, the debtor must list all income, debt, personal property, and monthly expenditures. The amount of the plan payment is based upon the debtor’s disposable income. For example, after the debtor lists all household income and household monthly expenditures (utility bill, water bill, food, clothing expenses, rent/mortgage, phone bill, etc.) whatever is left over is the debtor’s disposable income. As with Chapter 7, both spouse’s income and expenses are considered to determine the plan payment.

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What to Avoid Before Filing for Bankruptcy

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If you are considering filing bankruptcy, there are a few transactions you should avoid so you do not have any complications with receiving your discharge.

Credit cards and cash advances:
You should stop using credit cards if you know you are not going to pay them off. When you decide to file for bankruptcy, do not continue to use credit cards and do not take any cash advances. For example, if you decide that you are going to file for bankruptcy and within 90 days before filing you use your credit cards and take cash advances, those credit card companies could claim that you used the cards with fraudulent intent. They would argue that at the time you used the credit cards or took the cash advances you were never planning on paying them off, and therefore, you had fraudulent intent. When you decide to file for bankruptcy, stop using your cards and do not take any cash advances.

New loans prior to filing for bankruptcy:
If you apply for a loan just prior to filing for bankruptcy you may have to keep the loan. For example, if you receive a loan for a car within 90 days of filing bankruptcy you will most likely have to keep paying the loan. So if you know you’re going to file for bankruptcy, do not take on a loan unless you want to keep that loan.

Fraudulent transfers:
Do not transfer any real property or personal property into another person’s name. When you file for bankruptcy you must list all your personal property and real property. If there is equity in the property the Trustee will want to take the property. Therefore, many people wrongly believe that if they transfer the title to someone else they do not need to list the property. But that is not the case. You will have to list all transfers of property, in some cases you will have to list property transferred 2 years prior to filing, and other cases 10 years prior to filing for bankruptcy. For example, I have had many clients tell me that they own a car that is paid off and titled in their name but they consider the car to be their child’s car. When filing for bankruptcy, it doesn’t matter who drives the car, it only matters whose name is on the title. In that situation, the car would have to be listed in the bankruptcy because the title is in the parent’s name. Even if the parent transferred the title into the child’s name, that transfer would have to be listed in the bankruptcy.

Not disclosing real property and personal property:

As I explained above, when you file for bankruptcy you will have to list all your property, both real and personal. Do not hide property. You must disclose everything.

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What is a Meeting of Creditors?

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After the debtor files either a Chapter 13 or Chapter 7 bankruptcy, the debtor will receive notice of when the first meeting of creditors is scheduled. The first meeting of creditors is held approximately 45 days after filing the bankruptcy petition and schedules. The meeting of creditors is also referred to as a 341 meeting after section 341 of the Bankruptcy Code.

The purpose of the meeting is to examine the debtor regarding the petition and schedules that was filed, and to allow creditors the right to question the debtor. The 341 meeting is fairly informal but the debtor is sworn in and required to tell the truth. Attendance by the debtor at the 341 meeting is required. Bankruptcy Judges are not allowed to be present at the 341 meetings. The trustee assigned to the debtor’s case will administer the oath to the debtor and ask for the debtor’s picture identification and social security card. The trustee will question the debtor about certain assets, whether anyone owes the debtor money, whether the debtor expects an inheritance, whether the debtor listed all assets and debts, etc.

Additionally, if the debtor filed a Chapter 13 bankruptcy, the debtor will be required to read and complete forms and the Trustee will review the proposed plan to ensure the debtor understands the plan. Typically, the 341 meeting last about 5 to 15 minutes. Most of the time creditors do not come to the 341 meeting because they do not need to be present at the meeting to file an objection.

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Chapter 13 Bankruptcy

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Chapter 13 bankruptcy is essentially a reorganization. Chapter 13 enables individuals to develop a payment plan to pay back either all or some of their debt to creditors over a 3 or 5 year period. The time period is based upon the debtor’s current monthly income. If the debtor’s income is less than the states median income, then the plan will be for 3 years. If the debtor’s income is above the states median income, then the plan will be for 5 years.

To qualify for chapter 13 bankruptcy, the debtor must have income to fund the plan. Additionally, the debt limits for a chapter 13 recently increased to $360,475 for unsecured debt and $1,081,400 for secured debt. This means that if your debt is greater than these limits, you will have to file either a Chapter 7 or a Chapter 11 bankruptcy.

If the debtor decides to keep secured property, the debtor will continue to make payments to those secured creditors. However, if the debtor does not want to keep secured property, such as a house or car, the debtor can surrender the property and the creditor will take the property back and the remainder amount owed is treated as unsecured debt. Unsecured creditors (credit cards for example) must receive at least as much as they would have received if the debtor filed a Chapter 7 bankruptcy. For example, if unsecured creditors would have received $5,000 if the debtor filed a Chapter 7 bankruptcy, then the unsecured creditors must receive at least $5,000 over the course of 3 to 5 years during the chapter 13 bankruptcy.

When preparing the chapter 13 schedules to file with the petition, the debtor must list all income, debt, personal property, and monthly expenditures. The amount of the plan payment is based upon the debtor’s disposable income. For example, after the debtor lists all income and monthly expenditures (utility bill, water bill, food, clothing expenses, rent/mortgage, phone bill, etc.) whatever is left over is the debtor’s disposable income. The debtor does not list payments to secured or unsecured creditors that are paid within the plan. For example, if the debtor has $150 left over after paying all necessary expenses, then the debtor would make a payment of approximately $150 per month to the Trustee for either 3 or 5 years, depending upon the plan.

Chapter 13 bankruptcy requires a commitment from the debtor to pay monthly payments to the Trustee. The debtor has a choice of either directly paying the Trustee or having his/her employer pay the Trustee directly. The debtor has a much greater chance of completing the plan successfully if the debtor allows his/her employer to pay the Trustee. However, it’s the debtor’s responsibility to ensure his/her employer is making the payments timely. If the debtor misses a payment, the debtor must make up that payment within 21 days and pay the next months payment. If the debtor fails to make up the payment, the debtor’s case is dismissed, and the debtor does not receive a discharge. The debtor would then be liable for the entire debt.

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How Does Bankruptcy Affect My Credit Score?

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Many people worry that if they file bankruptcy they will ruin their credit. It is true that a bankruptcy will remain on your credit for up to 10 years. However, the truth is, if you are considering bankruptcy your credit is most likely not very good. A lot of money owed to many creditors can bring down your credit score because you are considered a high credit risk. Additionally, paying creditors late or not at all will also lead to a low credit score and possibly lawsuits from your creditors.

You can rebuild your credit score after filing bankruptcy. The first step is to ensure that all accounts included in your bankruptcy show that they were included in the bankruptcy. This should be on your credit report about six months after your bankruptcy discharge. Remember, any errors on your credit report can affect your credit score. The second step to rebuilding your credit score after a bankruptcy is to start using credit wisely. You should start with secured cards, which gives you a limit equal to the amount in your account. Try not to charge more than 30% of your credit limit. Pay off your credit card at the end of the month. Installment loans also help rebuild your credit, such as car loans, student loans, and mortgages. Just make sure you can afford the car payment and mortgage payment. Don’t be surprised at the higher interest rate you will receive at first due to your bankruptcy filing. In time though, after rebuilding your credit, you will begin to receive lower interest rates.

So if you are considering filing bankruptcy and you are paying bills late or not at all, chances are your credit is not good. After filing bankruptcy most people are a better credit risk because they no longer owe debt to many creditors. Of course the creditors want you to think otherwise. Don’t be fooled, in most cases bankruptcy provides a fresh start.

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Should I File a Chapter 7 or Chapter 13 Bankruptcy Petition?

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Consumers generally file either a Chapter 7 or a Chapter 13 bankruptcy. Some people wrongly believe that a Chapter 7 bankruptcy is the best way to go, but that is not always the case. Everyone has their own unique situation which should be analyzed by a professional to determine whether a Chapter 7 or a Chapter 13 bankruptcy is more appropriate for you. For example, if you do not have a lot of unsecured debt such as credit card debt or medical bills, but you have a home worth $200,000, a first mortgage of $210,000 and $75,000 on your second mortgage, and you want to keep your house, filing a Chapter 13 bankruptcy may be appropriate for you because you may be able to “lien strip” the second mortgage.

On the other hand, if you have a lot of unsecured debt such as medical bills and/or credit card debt, than Chapter 7 may be more appropriate for you. However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made changes to the Bankruptcy Code, which makes filing a Chapter 7 bankruptcy more complicated. To be eligible for a Chapter 7 bankruptcy there is a 2 part test. First, there is the “means test”. This subjects debtors to an income based test. But if the debtors income is below the state’s median income, than the debtor is not subject to the means test. Additionally, debtors with primarily (more than 51%) business debts (including investment properties used as rental properties) may file a Chapter 7 bankruptcy regardless.

However, even if you pass the means test, you still have to pass a second test known as the “abusive test”. The United States Trustee or any creditor can move to have your case dismissed. The bankruptcy Court could dismiss your case if the Court finds that you have the ability to pay back a significant portion of your unsecured debts.

If you are eligible to file a Chapter 7 you are looking to liquidate your debt. You are able to keep some property and may have to let other property go. You can keep exempt property.

A Chapter 13 bankruptcy is a form of reorganization. The debtor proposes a plan to pay his creditors over a 3 to 5 year period. Generally, the debtor keeps property and the creditors get less money than they are owed. However, the unsecured creditors must receive at least as much through the Chapter 13 plan as they would have received in a Chapter 7 liquidation.

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Your Inherited IRAs Are Not Protected From Creditors

Your Inherited IRA’s are Not Protected from Creditors

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In a major decision, the Supreme Court ruled in June 2014 that inherited IRAs are not considered protected retirement funds—and are thus subject to creditors’ claims if the beneficiary files for bankruptcy.

In the case of Clark v. Rameker, Heidi Heffron-Clark argued that a $300,000 IRA she inherited from her mother in 2001 qualified as a protected retirement account. As such, she contended, the account was exempt from the claims of creditors after Heffron-Clark and her husband filed for bankruptcy in 2010.
However, under U.S. tax code regarding inherited IRAs, Heffron-Clark was required to withdraw a minimum amount of money from the account each year, even though she is not yet retirement age. Given this, the court decided the account was not a protected retirement fund because the beneficiary wasn’t using it as one.

Why does that matter?
The Clark v. Rameker decision means that, in the case of bankrupt estates, inherited IRAs will now be considered assets—fully available to satisfy creditors’ claims. If you pass a retirement fund down to a child or grandchild, that inherited money will no longer be protected if your beneficiary must file for bankruptcy.

What should I do?
Careful estate planning can ensure that inherited IRAs remain safe from your beneficiary’s creditors. In most cases, establishing a Standalone Retirement Trust will protect your assets without restricting your beneficiary’s access to them.

How does it work?
Upon the retirement plan participant’s passing, his or her funds will flow into the third-party trust instead of passing directly to the beneficiary. Because the beneficiary does not establish the trust, doesn’t fund the trust with his or her own money, and cannot modify the trust, the trust will—in most jurisdictions—enjoy substantial protection from the claims of the beneficiary’s creditors. An independent trustee—who isn’t the beneficiary—can also be appointed to oversee the trust’s distributions in order to ensure further protection from creditors’ claims.

What do I need to do?
Make an appointment with an estate planner in your area to discuss your options. Standalone Retirement Trusts must be drafted carefully in order to ensure that the trust qualifies as a “Designated Beneficiary.” This guarantees that the trust will be able to take out the minimum required distributions according to the beneficiary’s life expectancy, not the plan participant’s. If the trust is not set up properly, the entire inherited IRA will need to be withdrawn within five years of the plan participant’s death. Work with a reputable planner to make sure your trust is structured correctly and that your beneficiary—and not his or her creditors—will receive the funds you pass down.

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How Banktupcy Affects Child Supoort

How Bankruptcy Affects Child Support

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Money is the root of all evil. That’s how the old saying goes.  Sometimes fights about money or money problems can be a factor in why couples get a divorce.  After a divorce, one or both people may end up having to file for bankruptcy.  In dealing with bankruptcy concerns, child support becomes a critical factor for Florida law cases. If you find yourself in this situation with your ex-spouse, it’s good to understand how bankruptcy affects child support payments.

 

Often, one party files for bankruptcy under the impression that any and all financial obligation to the other party will be dischargeable in the bankruptcy.  But, this does not apply to alimony or child support obligations. In response to the economic downturn and housing market decline, a bankruptcy law went into effect in 2005, titled ‘The Bankruptcy Abuse Prevention and Consumer Protection Act’ (BAPCPA). This altered the relationship of debtors and creditors, and altered the relationships between creditors. The law changed things in the bankruptcy code including how a domestic support obligation will be handled.

A domestic support obligation can be:

  • Alimony and/or child support
  • Money owed to a spouse before divorce
  • Financial obligation incurred during a divorce agreement

Prior to The Bankruptcy Abuse Prevention and Consumer Protection Act, the law indicated that you could not release a child support obligation or alimony in a Chapter 7 or Chapter 13 bankruptcy, but you could discharge any money owed to a spouse under a divorce agreement as long as the money wasn’t a part of the alimony or child support obligation.  Also, before this new law, if the ex-spouse filing for bankruptcy couldn’t pay the debt or if discharging the debt would be less damaging to the spouse receiving the funds, it could be listed and discharged depending on the final judgment of the court. All of this changed with the new law.

A Chapter 7 bankruptcy is a personal bankruptcy, offering filers a complete discharge of all eligible unsecured debts; however, child support is not eligible for discharge thanks to The Bankruptcy Abuse Prevention and Consumer Protection Act.  It is understood by the United States Congress, family law and bankruptcy courts that child support payments are intended to maintain a human life and are therefore highly prioritized and protected by the court. If you or your ex-spouse file a Chapter 7 or 13 bankruptcy, the domestic support debt and child support is still obligated and the courts will not be able to discharge the debt. When the bankruptcy is over, the spouse will still owe the debt and support to the other spouse.

Bankruptcy eliminates certain low-priority debts, so it may make it easier for your ex-spouse to make monthly child support payments.  Bankruptcy can’t change what your ex-spouse owes in child support or modify the amount of payment.

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Chapter 7 Bankruptcy

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A chapter 7 bankruptcy is when a debtor liquidates his/her debt. In this situation, the debtor lists out all debts, assets, and income. The Trustee looks to see if the debtor has any assets that can be sold to pay off unsecured creditors. Unsecured debt includes credit cards and medical bills, for example. Secured debt includes home mortgages and car loans.

So in a chapter 7 bankruptcy, the debtor lists all secured debt and either reaffirms the debt, surrenders the property, or redeems the debt. When a debtor reaffirms the debt, the debtor intends to keep making payments and keeps the property. If the debtor decides to surrender the property then the debtor gives back the property. So if the debtor decides that he/she no longer wants to keep his/her house because the home is underwater and/or can no longer afford the payment, then the debtor can give the property back and will no longer be responsible for the payments. If the debtor decides to redeem the debt then the debtor pays the appraisal value of the property at one time.

In a Chapter 7 bankruptcy, the debtor must list all personal property, including furniture, clothes, jewelry, etc. The Trustee sales assets that have value and are not exempt. Every state has its own exemptions. If your property is exempt then the Trustee cannot sale the property to pay unsecured creditors. This blog is intended for debtors filing in Florida. In Florida a debtor who has been a permanent resident of Florida for 2 years immediately preceding filing bankruptcy is allowed certain exemptions including: all equity in the debtor’s homestead as long as the debtor has lived in the home for 40 months or longer prior to filing bankruptcy. If the debtor has lived in the home for less than 40 months only $137,000 of equity in the home would be exempt. Furthermore, an individual debtor is allowed $1,000 for personal property and an additional $4,000 “wild card” if the debtor does not have a homestead. Joint debtors (husband and wife) get $2,000 for personal property and an additional $8,000 if they do not have a homestead. Other exemptions include 401K plans, tax deferred retirement plans, pensions, cash value of life insurance, IRA’s, disability income, and social security income. Finally, $1,000 of equity in a car is exempt.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made changes to the Bankruptcy Code, which makes filing a Chapter 7 bankruptcy more complicated. To be eligible for a Chapter 7 bankruptcy there is a 2 part test. First, there is the “means test”. This subjects debtors to an income based test. But if the debtors income is below the state’s median income, than the debtor is not subject to the means test. Additionally, debtors with primarily (more than 51%) business debts (including investment properties used as rental properties) may file a Chapter 7 bankruptcy regardless. However, even if the debtor passes the means test, the debtor still has to pass a second test known as the “abusive test”. The United States Trustee or any creditor can move to have the case dismissed. The bankruptcy Court could dismiss the case if the Court finds that the debtor has the ability to pay back a significant portion of the unsecured debts.

Prior to filing a Chapter 7 bankruptcy, the debtor must take a credit counseling class through a certified counseling company. The certificate of completion must be filed with the Chapter 7 petition and schedules. Additionally, the debtor will also be required to take another counseling course, debtor education, after filing the bankruptcy.
After the bankruptcy is filed the automatic stay begins immediately upon filing a bankruptcy petition. This is an automatic injunction prohibiting creditors, with certain exceptions, from collecting debt from the debtor. The automatic stay protects against foreclosure, repossession, liens, and harassing phone calls and letters.

A debtor is in chapter 7 bankruptcy for approximately 4 to 6 months. The debtor is required to attend a meeting of creditors known as a 341 meeting. During the meeting the Trustee will ask the debtor questions and the bankruptcy while the debtor is under oath. Creditors are notified of the 341 meeting and may attend the meeting to ask questions.

Usually, if there are no issues of fraud or misrepresentation, the debtor generally receives the discharge two months after the 341 meeting. The creditors are given 60 days to raise any objections after the 341 meeting.

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What Happens If I Stop Paying My Credit Card Bills?

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Unfortunately, many people are finding that they are unable to pay their monthly credit card bills. This is not a surprise in today’s economy. Many people have lost their jobs or have high mortgage payments due to the structure of their mortgage. So, what happens if you can’t make your minimal payments toward your credit card balances? The collection efforts begin…

Usually, you will first receive a statement reflecting that you are 30 days late. You will also have a late payment penalty fee. Additionally, your interest rate will likely increase. As the months go by the fees will continue to be added and your account will be closed. The creditor will report your delinquency to the credit bureaus. The calls will also start. You will start receiving numerous calls requesting payments. These calls can be harassing at times. There are laws in place to protect debtors from these harassing calls but sadly some creditors continue to harass debtors while knowingly violating these laws.

After months of not making payments and receiving penalty fees, increased interest rates, and numerous phone calls, what happens next? Usually, this is when you will be served. Yes, the dreaded lawsuit. Creditors will either retain outside counsel or use in-house counsel. You will be served with a Complaint for breach of contract and/or account stated. In Florida, you will have 20 days to Answer the Complaint. If you do not Answer the Complaint within the 20 days, you will receive a default judgment.

What happens after the default judgment? The creditor will try to collect from you. Either by garnishing wages, placing a lien on your property, and/or freezing your bank account. So if you can’t afford your credit card payments, you should consider speaking with a professional to protect you from the consequences.

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