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Learn About Loans


Learn About Loans

Know your options if you're having financial difficulty. Find out about various types of loans and their particular properties. Some types of loans can be discharged completely in certain circumstances.

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About Payday Loans

In a word, DON’T take them, if you haven’t already.

Payday loans are a form of financial cancer, primarily invading economically disadvantaged areas.

With interest due over a 2-week period of 30 percent or more, the annualized rate is upwards of 800 percent, not including fees. A loan from a friend, or an advance on your paycheck, or a cash advance on your credit card are all vastly preferable to taking out a payday loan.

Many low-income borrowers fall into a vicious cycle of taking an additional payday loan to pay off the previous one, coming to rely on these loans as their source of income. This is a toxic pattern, soon leaving the borrower completely unable to repay. Many lenders will ask for a post-dated check as collateral on the loan, and threaten the borrower with criminal prosecution and jail for having written the bad check in the event of default or bankruptcy.

Payday loans are unsecured debt and can be wiped in a Chapter 7 filing, or restructured and mostly wiped in a Chapter 13 filing. Lenders may attempt to challenge the discharge of the loan, claiming the borrower never had intent to repay. Courts may find that the original loan in a series of payday rollover loans was earlier than the 90-day limit preceding bankruptcy required by law to wipe a debt in a bankruptcy settlement.

If you have taken a payday loan, it’s a good idea to wait until 90 days after the due date on the last of them to file for bankruptcy.

Payday lenders are often unscrupulous and predatory in their sales and collection practices.

If you’re in trouble with a payday lender, or fallen into the vicious circle of payday rollovers, Todd Murphy Law can help.

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Secured vs Unsecured Debt

The two basic types of loans are “secured debt” and “unsecured debt.”

Secured debt is a loan underwritten by an asset used as collateral. These loans include mortgages, car loans, and some kinds of consumer loans for durable items such as TVs or furniture.

Unsecured debt includes credit cards and bank lines of credit,

After foreclosure or repossession, that portion of the loan balance unpaid by the proceeds known as a “deficiency” is another form of unsecured debt. It’s the portion of collateralized debt remaining after the underlying asset has been sold. Assets such as cars and other durable consumer goods decline rapidly in value after purchase. In the event they’re repossessed and sold, the proceeds of the sale are usually not enough to cover the balance on the loan, creating the deficiency, for which the borrower will be held responsible.

A deficiency can be discharged in a bankruptcy filing, if it’s created before the filing.

Real Estate can appreciate in value. Historically, it has, at an average rate of 5%/year over the last 100 years – but it can enter periods of decline, as it did precipitously from 2006 to 2011, leaving millions of homeowners “underwater,” owing more on their property than the property can be sold for in today’s market.

Although mortgages are considered secured debt, it is possible a foreclosure sale may bring less than the outstanding balance on a mortgage, creating a deficiency –for which the buyer can be held responsible under certain circumstances. Read more about deficiencies here.

Todd Murphy Law are experienced at restructuring, managing, and in some cases discharging debt.

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Can I Discharge Debt with Chapter 13?

You can discharge debt with Chapter 13 bankruptcy, and keep your assets.

Chapter 13 Bankruptcy is essentially a repayment program.  If you follow the repayment schedule that you and your attorney set up with the court, your unsecured debt is discharged at the end of the program.  That means that credit card debt, medical debt, and other unsecured debt (we’ll talk about secured v. unsecured in a moment) is considered no longer yours if you successfully complete the Chapter 13 plan.

Secured debt is debt that is backed by a physical object such as a home or a car.  These types of debt you must continue to pay on your Chapter 13 schedule.  Unsecured debt is the kind of debt that is NOT backed by a valuable physical object, such as credit cards, medical debt, store cards, furniture, etc.  During your Chapter 13 plan, you do not make payments toward your unsecured debt.

During your Chapter 13 plan, you MUST make 50 payments towards your SECURED debt ON TIME in order for you to complete the plan and get your unsecured debt discharged.  Todd Murphy, NJ Bankruptcy Lawyer, recommends that you set aside some emergency money so that you can ALWAYS make your SECURED debt payments ON TIME and complete your Chapter 13 plan, so that you can get your unsecured debt discharged.

Todd Murphy, NJ Bankruptcy Lawyer, will work with you to asses what is called your “disposable income”.  This is the income you have leftover at the end of the month after you pay your living expenses.  Your disposable income should be enough to pay your SECURED debt payments like your mortgage or car payment.  After you make 50 on-time payments, you will have successfully completed your Chapter 13 plan and you will be free of your unsecured debt!

Contact Todd Murphy to find out if you qualify for a Chapter 13 Bankruptcy plan.

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What can I do if my student loan debt is high compared to my income?

If your student loan debt is high relative to your income, you may qualify for the Income-Based Repayment Plan (IBR).

 

Student Loan Debt: Income-Based Repayment (IBR) is designed to reduce monthly payments to assist with making your student loan debt manageable. If you need to make lower monthly payments, this plan may be for you.

To qualify for IBR, you must have a partial financial hardship. You have a partial financial hardship if the monthly amount you would be required to pay on your IBR-eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under IBR. Your payment amount may increase or decrease each year based on your income and family size. Once you’ve initially qualified for IBR, you may continue to make payments under the plan even if you later no longer have a partial financial hardship. Find out whether you’re eligible.

What Typed of Loans Are Eligible For Income Based Repayment?

 

Most major types of federal student loans—except for PLUS loans for parents and Consolidation Loans that repaid PLUS loans for parents—are eligible for IBR.

 

Find out more about the William D. Ford program here: William D. Ford Direct Student Loan Program.

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Are Credit Settlement Companies A Good Deal?

Many of you may be wondering “Are credit settlement companies a good deal?”  Maybe you received a letter like the one pictured below.  Letters like this one arrive in your mail box looking very official so you will be compelled to open them.  And, once opened, the notice takes on a “government issued” look – something you can feel safe about and shouldn’t ignore. This organization calls itself the “New Jersey Assistance Center” “RE: Dept. of the Treasury Publication 4681” printed in bold on the top line.

But, what are these companies actually offering? And, are they a good deal?  Yes, that’s what these letters are: very aggressive sales offerings.  Let’s look closely at the offer below.  This one is not much different than many of the others being sent to people with credit issues.

First, how did you even get this letter?  Probably because the company has purchased a list of names of people with high credit balances and/or late payments on debts found on their credit reports.

Once opened, the letter pictured below starts off in bold on the top line “RE: Dept. of the Treasury Publication 4681.”  A Google search of Dept of Treasury Pub 4681 brings one to a page at the IRS.  See IRS Publication 4681.  The letter directs us to the “insolvency” section of publication 4681 which states in simplified form that if you are deemed insolvent, any debt cancelled by a credit card company or other creditor, may not be included in your taxable income. There is a worksheet to determine whether or not one is insolvent.

Next, the letter states that the person the letter is addressed to owes $48,928 and that the credit settlement company can settle the debt for $19,571.  They base this claim on “past results.”

Then, the hard sales pitch really ramps up as the letter states “your creditors have taken action by increasing your interest rates.”  And, that the company can help you “avoid any pending legal action from your creditors such as wage garnishment, levy of funds from bank accounts, or liens placed against property.”

All of this seemingly for no charge.  “The letter states New Jersey Assistance Center does not charge a fee for its services.”  Does that seem realistic to you?

Of course there is a deadline which is less than one month form the date the letter was sent to get you to call fast.

Credit Settlement Solicitation Letter

 

Here are some questions I would want to have answers to:

  1. While the publication referred to is legitimate, what does it really have to do with your credit problems?
  2. What guarantees are there to back up the claim of settling the debt for $19,571 which is more than half of the claimed balance?
  3. How long does it take?
  4. Can creditors still sue or take other collection actions while the company is settling your debts?
  5. What appears on my credit record after these debts are settled?
  6. Is there really no fee for your service?  That seems unrealistic.

Here are what I believe would be answers to these questions:

  1. The publication lets consumers know that if they do indeed settle debts, they won’t be taxed on the forgiven amount if they can be deemed insolvent.
  2. There are no guarantees that we can settle your debts for his amount or any amount.  We will try our best.
  3. We can negotiate with the creditors in a matter of weeks but you may be paying the agreed amounts for two or three years
  4. During the time you are repaying, nothing will stop the creditors from taking other action.  and, if you miss a payment, or stop paying completely, the creditors have every right to come after you for the original balance and unpaid interest at their very high rates usually +/- 30% plus late fees, lawyers fees.  And, they can get a judgment against you and garnishment of your wages, levy your bank account, or take other actions to collect their outstanding debts.
  5. Your credit will be affected negatively with notations about settlement.
  6. These companies ARE paid a fee for their services.  Sometimes they are paid a commission on how much they save you. These fees are paid as part of your settlement payment to the credit card company.

Are these credit settlement companies a good deal?

For most people, the answer is simply no.  While I can’t say these companies aren’t helping to negotiate the debts of some, they aren’t doing anything you can’t do yourself.  And, most importantly, they are not utilizing any of the protections available to an individual through the bankruptcy laws. Most importantly – the automatic stay in bankruptcy.

The bankruptcy laws guarantee that you will be protected form all collection actions by any creditor.  Whether you qualify for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, the bankruptcy laws legitimately allow an individual to discharge certain debts, re-negotiate others and in all cases, you will not have to pay tax on any debts forgiven even if you are not deemed insolvent.

Bankruptcy is a very smart choice for most individuals who are having trouble with too much debt. It is a government sanctioned program designed to help you while giving you every protection available under the law.

Before you sign-up with one of these companies, call to investigate all of your options under the bankruptcy laws.

Call today: 800-285-1925.