Dubiln Packard

About Student Loans

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About Student Loans

Everybody wants to send their kids through college, but the economic collapse of 2007 has left most families unable to pay for it out of savings or home equity. Student loan debt in the US has quintupled since 1999 with growth exploding since 2005. In a difficult employment environment, individuals may also seek trade or occupational certification from a school in response to advertisements promising employment, and take out student loans in order to do so.

Common perception has been that student loan debt is inescapable because it’s Government-backed. By law, student loan lenders have avenues of recourse not available in other types of debt, including the seizure of Federal tax refunds, Social Security benefits, Social Security Disability benefits and wage garnishment for as long as the debtor is alive. The 20-year statute of limitations on other debt doesn’t apply to Federally-backed Student Loans.

There are avenues of recourse for the borrower in financial difficulty, however. Student loans can be extended, restructured, forgiven, cancelled, or discharged in certain limited circumstances. As with any other kind of debt, taking action sooner is better, offering more options. A qualified attorney can help in the process, which involves dealing with the US Department of Education Ombudsman and/or your lender. A qualified attorney familiar with the options and your circumstances can guide you toward a resolution you can afford, even if you’ve gone into default on the debt.

Deferment is a postponement of payment obligation that can be granted if the borrower is enrolled in school, unemployed, in the military or Peace Corps, or suffering economic hardship, and is not more than 270 days behind in loan payments. Interest will not accrue during a deferment.

Forbearance is another form of postponement that can occur in the event of financial difficulty, health problems, personal problems, or if the payments are more than 20 percent of monthly income. Interest does accrue in forbearance.

Cancellation can occur if the school attended closes during the course of study, if you become employed as a teacher or some other public service jobs, or if your school misrepresented your likelihood of employment and you don’t have a diploma or GED.

Discharge can occur in a bankruptcy filing, although, usually, courts will not discharge student loan debt unless certain specific conditions are met. Ask your attorney about the Brunner test. If you’ve shown good faith in attempting to repay, your poverty is likely to persist, and you just can’t afford it, you might meet the test for discharge. If the loan is from an occupational or trade school and fraudulent claims were made by the school or lender, discharge will be considered.

 

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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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What Happens if I Walk Away from a Mortgage?

“Walking away” involves making a deliberate decision to stop paying the mortgage, while giving up hope of holding on to the property. It’s a choice to let the foreclosure process proceed.

With foreclosure, your credit report takes a hit of 125-240 points (depending on delinquencies or other factors) for seven years. With a short sale, the hit lasts for 3 years. After you stop paying your mortgage, other options such as loan modification may still be possible, and it’s best to act sooner rather than later to explore these. A qualified law firm such as Todd Murphy Law can help explore your options and review them with your creditors. If all else fails, or your home is difficult to sell for some reason, then walking away is the last remaining, least-desirable choice.

There have been millions of foreclosures in the United States over the last decade—you are not alone. Although it’s not what anybody intends when they purchase a home, it may become necessary at some point to take the hit, if the home has become unaffordable.

In some cases there may be tax consequences for walking away, although the first $1 Million (or $2 million if filing jointly) was exempt under the Mortgage Forgiveness Debt Relief Act of 2007 (for primary residences).  Congress failed to renew the law in 2012.

Another potential consequence is a “deficiency” suit brought by the lenders, in an attempt to recover the difference between the loan amount and the foreclosure or short-sale proceeds. Some states have complete consumer protections against deficiency suits, (known as “non-recourse” states). New Jersey doesn’t.

The lender must file their deficiency suit within 3 months of the Sheriff’s sale in New Jersey. Invoking the fair market value of the property is a common defense against deficiency. If a judgment is awarded to a lender, the borrower has bankruptcy as a last resort option to wipe the judgment.

Deficiency judgments are relatively rare when borrowers have few assets and poor credit, with lenders choosing instead to issue a 1099 to the borrower. The IRS views deficiencies as income to the borrower – unless the 1099 was filed in 2007-2013, in which case it is tax exempt. If a buyer is doing a “strategic default” such as walking away from an underwater second home – and has other assets and relatively good credit – the likelihood of a deficiency action increases substantially.

Todd Murphy Law can help defend deficiency actions, and also assist consumers with bankruptcy filings. When financial affairs get out of control, bankruptcy is available as a legal tool to gain a fresh start for the consumer.

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What is a deed-in-lieu of foreclosure?

Now also known as a “Mortgage Release” (courtesy of Fannie Mae), a deed-in-lieu of foreclosure involves giving the deed of the property to the mortgage holder – that is, the bank.

The surrender of deed takes place at a closing, similar to a standard purchase or sale.

A deed-in-lieu can offer some flexibility in the timing required in vacating the property, with options such as three months continued occupancy, a lease-back from the bank for as long as a year, or up to $3000 in funds for immediate relocation paid by the bank.

The mortgage company will need to see supporting documentation regarding your financial condition, and will need to be persuaded that this is indeed the best option for your circumstances.

Similar to a short sale in one aspect, a deed-in-lieu exposes the borrower to the possibility of a “deficiency judgment,” wherein the mortgage holder can sue for the difference between the amount of the proceeds and the amount outstanding on the loan. Your attorney should insist on a deficiency waiver in a deed-in-lieu agreement, if at all possible.

Find out more about Deficiency Judgments here.

At Todd Murphy Law, we can help. As a third party, we can discuss the particulars of your situation with your lender, make sure that all supporting documentation is in order, and obtain the most advantageous possible terms for your departure from your residence in a time frame suitable to you.