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HOW DO YOU HELP CLIENTS DEAL WITH THE EMOTIONAL DISTRESS OF FILING FOR BANKRUPTCY?
I try to create a very relaxed environment; I’m not your typical button-down lawyer, my office is a very pleasant space and I give people the time they deserve; I tell people they won’t leave until they understand everything about their situation and know their options and I hold to that. Consultations can take a while; sometimes as much as two hours, depending on how complicated the situation is.
When somebody comes in for intake, when we run through the data input and then we work through their budget calculation together. They actively participate in the process. For the first time, they see how their money is being spent. In the real world, financial ratios are of very little value in evaluating your financial situation.
What Do You Advise Clients That Are Overwhelmed By Financial Problems?
I tell people bankruptcy does not create income, bankruptcy manages that; we’re focused on debt. There are two types of debts; there are secured debts, where you pledged a collateral interest in some type of property, and there is unsecured debt. Within the category of unsecured debt, there are priority claims, which are typically taxes and domestic support obligations, and then general unsecured claims, credit cards, medical bills, auto deficiencies, any other debts not tied to your house or your car or any other property.
How are Student Loans Treated?
Student loans are considered general unsecured debt – so theoretically, they are treated like any other unsecured claim; except that neither federal or private student loans are not dischargeable. However, we have worked hard to allow for the rehabilitation of student loan defaults in Chapter 13 proceedings.
I have worked very diligently with the U.S. Attorney to fashion language acceptable to the Department of Education to allow for the rehabilitation of defaulted federal student loans while people are in active Chapter 13 plans. Private student loans create a much more complicated situation. Private student loans are the most toxic form of debt you can take on because lenders treat private student loans just like any credit card debt; you are in default the day you don’t make your payment on time.
Once the default is triggered, private student loan companies have the right to sue you in state court, they can get a judgment against you, rack up fees and expenses and costs and add that to the balance and they can garnish you under state law at up to 25 percent of your net earnings, which is not dischargeable. On the other hand, with federal student loans, even if you’re in default, we can work through an administrative rehabilitation process with the relevant department while you’re under the protection of a Chapter 13 with an automatic stay and emerge with some type of income-driven repayment plan. It’s the private student loans that create the real challenge.
Are there any Programs available that allow for the Forgiveness of Federal Student Loans?
In fact, there are a number of different programs available for federal student loans, which the public service loan forgiveness program being the most notable; if you work for a 501(c)(3) non-profit corporations or governmental entities. After making 10 years of payments, you’re able to get the balance of your student loans discharged without any tax consequences, which means you won’t get a 1099(c) for forgiveness or indebtedness, and that’s huge. Many people don’t realize that, to qualify for that, you have to file for a certain plan every year with the Department of Education because no one ever told them.
When people talk about student loans, it’s not about the trillion dollar outstanding balance. The real issue is how you manage your student loans. Our analysis is about whether the loans are federal or private, are they in default or repayment status and then your income.
What Are the Big “No No’s” when it comes to Parents and Student Loans?
The big “no no’s” is to never cosign a federal or private student loan. And the second is to never take out a Parent Plus Loan. Cosigning a private student loan is again one of the most toxic types of liability you can take on; it’s horrible because it never goes away until the issue is resolved or it’s paid in full. A lot of parents just blindly cosign for their kids and they realize 5, 10 years down the road the kid’s not paying on the student loan, they’re stuck. The same is true with Parent Plus loans – they never go away. There are things you can do to recover from those types of obligations, but there’s nothing easy about it.
For more information on Dealing with Emotional Distress, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling Attorney Mike Shovan at (989) 465-8144 today.