Posted by Kevin on June 29, 2013 under Bankruptcy Blog | 
This $36 billion is owed by 2 million older Americans. Garnishment of their Social Security benefits to pay these student loans has skyrocketed.
Here are the facts:
- You’ve likely heard that the total amount of student loan debt has surged beyond the amount of credit card and auto loan debt. The actual numbers as of a few months ago are:
- Credit cards: $693 billion
- Auto loans: $730 billion
- Student loans: $870 billion
- In addition to the student loan debt owed by 60+ year olds, nearly $100 billion is owed by 4.4 million 50 to 59 year olds, and $143 billion by 5.5 million 40-49 year olds. That’s nearly 12 million Americans 40 or older who still owe on student loans.
- Among all Americans who owe student loans nearly one-third of them are 40 or older. More than one-sixth are 50 or older.
- Through the Debt Collection Improvement Act of 1996, Congress centralized delinquent debt collection functions at the Department of Treasury, and authorized it to garnish borrowers’ Social Security payments to collect on federally insured student loans. (See p. 4 of this PDF of the Act, or 11 United States Code Section 3716(c)(3)(A)).
- At the heart of this Act is the following language:
“Notwithstanding any other provision of law… all payments due to an individual under… the Social Security Act… shall be subject to an offset under this section.”
- In 2000 six student loan borrowers had their Social Security payments garnished, in 2007 that number had shot up to 60,000 borrowers, and by last year 115,000 borrowers had their Social Security payments garnished.
- The garnishments cannot exceed 15% of the Social Security payment, and must leave the borrower with at least $750 per monthly check.
Note: much of this information is from a recent report by the Federal Reserve Bank of New York, and the U.S. Treasury Department’s latest annual Report to the Congress on U.S. Government Receivables and Debt Collection Activities of Federal Agencies.
Posted by Kevin on June 25, 2013 under Bankruptcy Blog |
The Simple Surrender
If you’ve decided to surrender your home, vehicle, or any other collateral that you no longer need or want to pay for, filing a Chapter 7 “straight bankruptcy” is usually the cleanest way to go. The remaining debt on the home is mostly either discharged (legally written off)—including 2nd mortgages, judgments, utilities—or is paid off by the mortgage holder after taking back the real estate—such as property taxes and homeowner association dues. On your vehicle loan, the often large “deficiency balance”—the amount you would owe after the creditor sells the vehicle and applies the sale proceeds to the loan balance—is discharged. You give up the collateral but you are quickly free of the debt.
The Possible Delayed Surrender
If you wanted to keep the property, Chapter 13 allows for that. But what if you know that your job may not last for more than another year, so you’re sensibly facing the reality that at that point you would likely not be able to continue making payments on the home or vehicle? Once again, Chapter 13 is the way to go. It allows you to make usually reduced payments while you have your job so you can keep the home or vehicle. Then, if you lose your job, you can convert to Chapter 7, surrender the property and have the debt discharged. Clearly, Chapter 13 gives you a lot a flexibility under these scenarios.
Flexibility at a Price
But, as with most things in life, there is a cost factor for this flexibility. Chapter 13 costs more in fees than Chapter 7, easily twice the cost, or more. The attorney fees are much higher because it is more work over a longer period of time. Plus the Chapter 13 trustee receives a percentage of what you pay to the creditors. Yes, you may save some money to retain the property in Chapter 13 as opposed to what the regular payment would be; however, those savings you may be partially or even fully offset by these higher fees.
Posted by Kevin on June 17, 2013 under Bankruptcy Blog |
If you want to hold onto your home, Chapter 13 gives you many extraordinary advantages.
A. If you are current on your mortgage: In most situations you will be allowed to keep making payments directly to your mortgage holder. The bankruptcy system puts a high priority on home mortgages, so almost always your Chapter 13 plan will be structured to pay your mortgage ahead of most other creditors.
B. If you are behind on your mortgage: You will likely have the whole 3-to-5-year length of your Chapter 13 case to catch up on your missed payments. Although theoretically you want to finish your case sooner than later, from a practical perspective the longer you have to catch up the less it will cost each month to do so. In fact because of this, homeowners often intentionally stay in their cases longer than their income requires just to make it easier on their monthly budget.
C. If you have a second mortgage: We may be able to “strip” that mortgage off your house, so that you won’t have to pay it. This is possible only if the home is worth no more than the balance owed on the first mortgage. And this can only be done in Chapter 13, not Chapter 7. Note that when the second (or third) mortgage is stripped off your title, you will be that much closer to eventually building some equity in your home
D. If you are behind on homeowner association dues: These special creditors usually have very aggressive collection methods available to them. But Chapter 13 can stop them and keep them at bay while you get current through payments earmarked to them through your plan.
E. If you are behind on your property taxes: Same thing. The county or other property tax agency is put on hold with any tax foreclosure or other collection procedures while the back taxes are paid through your Chapter 13 plan. Your mortgage company also sees that you are taking care of this responsibility and can monitor your performance in doing so.
F. If you have a judgment lien on your home: In many circumstances, judgment liens attached to your home can be “voided”—the lien undone and the underlying debt written off. The debt itself is treated as an unsecured debt and is paid whatever percentage all your unsecured creditors receive through your Chapter 13 plan. Usually this does not increase how much you end up paying to the creditors, but rather just shifts how much each of your creditors gets paid (if anything at all).
G. If you have an income tax lien: Chapter 7 does not have an effective way of dealing with an income tax secured through a tax lien. Chapter 13 does. Whether the tax lien is on a tax which can or cannot be discharged, your Chapter 13 plan will arrange to pay only those taxes that must be paid during the life of your case. So at the end of your case all necessary taxes will have been paid in full and the tax lien will be released.
H. If you have a child or spousal support lien: Another situation where Chapter 7 cannot help, under Chapter 13 the ex-spouse or support enforcement agency would be stopped from enforcing the lien, you’d have the length of your case to pay the arrearage, so that by the end of the case you would be current and any lien would be released.
These are the main special powers that Chapter 13 provides to help you keep your home. Often these are used in combination, to fight back at each of the ways your home is being attacked. Whether you just need to use one or two or a bunch of them, these powers make keeping your home much more likely to actually happen.
