NATIONAL COLLEGIATE STUDENT LOAN TRUST DISMISSES LAWSUITS

Four lawsuits against two of my clients were dismissed last month after the National Collegiate Student Loan Trust (NCSLT) was unable to prove it was entitled to collect the private student loans my clients allegedly owed. After filing motions to dismiss in each of the lawsuits I argued NCSLT had failed to prove how it was the "real party in interest" when the original loans had been with JPMorgan Chase. The judges gave NCSLT three weeks to file documents showing how it had acquired the right to sue but it wasn't able to do so. NCSLT also failed to show how the debt it was alleging was due had been calculated. If you're facing collection from NCSLT or any other private student loan collector contact us immediately to discuss your defenses.

CHAPTER 13 MORE LIKELY TO SAVE HOMES

A recent study confirms what many of us have known for some time-- filing Chapter 13 bankruptcy is one of, if not the best way to keep people in their homes. Researchers from North Carolina looked at the cases of nearly 4,300 homeowners across the country, all of whom were more than 90 days late on their 30 year fixed rate mortgages. The study said that when homeowners filed bankruptcy, sales of their home were 70% less likely to occur than for borrowers who didn't file bankruptcy. Although this was true whether or not the homeowner filed Chapter 7 or 13 bankruptcy, homeowners who filed Chapter 13 were five times more likely to avoid foreclosure sales.  The researchers found that the unique features of Chapter 13 were good tools for preserving home ownership. These features include the ability to cure defaults at 0% interest, strip liens and pay an attorney over time. Another finding from the study showed that even for borrowers who aren't successful at keeping their house, filing Chapter 13 provides benefits. According to the study, nationally the median length of time from the start of foreclosure to a sale of the house was 8 months for borrowers who didn't file bankruptcy but 16 months for those filing Chapter 7 and 26 months for those filing Chapter 13. This additional time to stay in their home provides borrowers a significant boost. If you're struggling with mortgage issues and want to consider Chapter 13 contact us to talk about what options are available.

CREDIT REPORTING REQUIREMENTS

The Fair Credit Reporting Act (FCRA) requires that when a consumer sends a dispute to a credit bureau it is supposed to forward that dispute to the creditor reporting the inaccurate or incomplete information. The credit bureau must give the creditor all relevant information related to the dispute. The creditor must then review the information and conduct an investigation into whether the report is accurate. If the creditor determines the disputed information is inaccurate it must correct the description of the account (called a "tradeline").

The Consumer Financial Protection Bureau (CFPB), the governmental watchdog over credit reporting, recently issued reminders to creditors about their obligations under the FCRA. The CFPB said it expects creditors to (1) maintain a system capable of receiving information about disputes, (2) conduct investigations using all information forwarded to them by the credit bureaus and their own information, (3) report the results of the investigation back to the credit bureau, (4) provide corrected information to all of the credit bureaus, and (5) modify, delete or permanently block incomplete or inaccurate information that a creditor might have provided to the credit bureaus. The CFPB said it is monitoring complaints from consumers and will bring enforcement actions when necessary. If your credit reports are showing inaccurate information about your debts contact us to talk about what response to take. Pursuing violations of the FCRA requires that specific steps be followed before relief can be sought in court. We can help walk you through what to do and advise whether legal action is warranted.

MODIFYING A CHAPTER 13 PLAN

Clients considering a Chapter 13 bankruptcy are often afraid they'll be stuck in a payment plan they can't afford if something changes during the plan period. As I often tell clients, life doesn't stop just because someone files Chapter 13 bankruptcy so the chances of some unforeseen circumstance disrupting their income are good. Although some clients go the entire 3-5 years without needing a plan modification, more often then not, something will happen that requires a change in the plan payment. Job loss, car repairs, home repairs, medical bills, tax debt. All of these and more might require that a plan be modified to address a borrower's new budget. To modify a plan a motion must be filed with the court explaining why the modification is needed and what the new payment plan is to be. The process for obtaining approval of a modified Chapter 13 plan generally takes at least 45 days so plan modifications can't be done quickly to reflect month-to-month changes in a borrower's budget. But if change in the plan payment is necessary, borrowers can be confident they won't have to continue making a payment they can't afford. If you're in a Chapter 13 plan currently and are anticipating some change that will make you unable to make your plan payment contact us as soon as possible so we can propose the necessary modification.

HEALTH IMPACTS OF TOO MUCH DEBT

Two recent studies document the serious health risks of not dealing with high debt levels. The latest study published in August 2013 from researchers at Northwestern University's School of Medicine looked at the psychological and general health conditions of young adults between the ages of 24 and 32. The study found that adults with high debt (defined as debt exceeding assets) had increases in high blood pressure, higher levels of perceived stress and symptoms of depression. Previous studies had found similar correlations between high debt and psychological health but the researchers were surprised to find that young adults now face physical health problems as a result of higher debt levels.

An earlier study from May 2013 conducted by researchers at the University of Michigan documents the unfortunate consequence of high credit card and medical debt. The researchers found that people are more likely to delay or avoid medical and dental care if they have significant credit card and medical debt. The researchers did not find the same results in households with just mortgages and car loans. The study's author said people with large credit card and medical bills "may be more pressured to repay them to avoid interest and stress, and they may forego medical care to save money under this kind of pressure, even if they really need it."

We have unfortunately seen these problems frequently in our practice. If you're suffering health impacts from too much debt contact us so we can discuss your options.

COSIGNED DEBT IN CHAPTER 13

Co-signing a loan for someone means you're making yourself fully responsible for repayment of the loan. While there may be an agreement between the co-signers as to who is going to make the payments, the lender doesn't need to honor that agreement. They just want to see the loan repaid, regardless of who pays. When a Chapter 13 bankruptcy is filed an "automatic stay" goes into place that prevents lenders from attempting collection. That automatic stay protects a co-signer as well as the debtor if the Chapter 13 plan will result in full payment of the loan. In other words, if someone files Chapter 13 bankruptcy and their plan will result in full repayment of a car loan that's been co-signed by a parent, the lender is prohibited from trying to collect the loan against the parent just as they are prohibited from trying to collect against the child. This is known as the "co-debtor stay" in Chapter 13.



An exception to the co-debtor stay is when the plan fails to propose full repayment of the loan that's been co-signed. In that case, the lender can ask the court to allow them to collect from the co-signer, but only the amount that's not getting repaid through the Chapter 13 plan. A lender may wait until after the bankruptcy is completed to see how much of the co-signed debt still remains before trying to collect from the co-signer. If you have loans or debt that has been co-signed and are considering bankruptcy contact us so we can discuss the impact of the bankruptcy on the co-signer.

MAKING CHAPTER 13 PLAN PAYMENTS

Clients in Chapter 13 bankruptcy can make their Chapter 13 plan payments several ways.  In Iowa the Chapter 13 trustee doesn't accept personal checks and can't do withdrawals from bank accounts but money orders or cashier's checks can be mailed to the trustee each month. The debtors' name and case number should be put on the money order or cashier's check. The best way to make plan payments, however, is through a wage deduction order that the trustee can set up with a debtor's employer. These wage deductions can be structured so that the entire payment is deducted once each month or deductions can occur every pay period and even from each debtor if filing jointly with a spouse. By having a wage deduction order created debtors are more likely to stay current on payments and avoid motions to dismiss from the trustee. The trustee will give debtors a specific plan payment date for each month but it's generally only important to make sure the payment is always made during the month it is due. If  you're interested in learning more about how Chapter 13 works contact us at melissaatthompsonlaw@gmail.com or visit our website at www.thompsonlawoffice.net. 

INDEPENDENT FORECLOSURE REVIEW PAYMENTS

Several clients have begun receiving checks as a result of errors made by mortgage servicers. Unfortunately, the payments don't begin to cover the actual loss suffered by many people who lost their homes to foreclosure or had to put up with multiple mortgage loan modification errors or problems. The checks result from a January 2013 settlement agreement between the nation's top eleven mortgage servicers and federal banking regulators. Nearly four million people are eligible for the payments.

The payments range from $300 to $125,000 depending on the type of servicing error, whether a foreclosure had been completed or not and whether the borrower was an active duty member of the military. Not surprisingly, only about 1100 of the four million  people eligible to receive payments are eligible to receive the largest amount of $125,000. The vast majority of borrowers will receive less than $1000. Payments will be received for a number of different categories, including where a servicer failed to engage with a borrower in a loan modification; where a modification request was denied; where a servicer completed foreclosure on a borrower performing all the requirements of a trial modification; where a servicer initiated foreclosure on someone in bankruptcy; where a mortgage servicer foreclosed on an active duty military member; and where a mortgage servicer failed to convert a borrower from a trial to a permanent modification.  Borrowers who receive and accept these payments waive no rights or defenses they might have against a mortgage servicer. A chart showing the number of borrowers in each category and the payment amount designated for that category can be found on the website of the Office of Comptroller of the Currency.

MORE CHAPTER 11s?

When the 2005 bankruptcy law was adopted by Congress it created a new "means test" that borrowers had to pass if they wanted to qualify for a Chapter 7. Congress limited this requirement only to debtors with primarily consumer debt. In other words, debtors who had incurred most of their debt from a failed business could avoid having to pass the means test in order to file Chapter 7. The provision allowed business debtors to file Chapter 7 even though their budget might have shown substantial income. The 8th Circuit Bankruptcy Appellate Panel (BAP) has ruled though, that a Nebraska bankruptcy court was correct when it approved the forced conversion of a Chapter 7 to Chapter 11 for a debtor who had primarily non-consumer debt but whose budget showed substantial disposable income. The Court said the conversion was acceptable under a different provision of the Code then the provision dealing with exemption from the means test for business debtors. 

The Court's decision raises serious implications for debtors who might need to file bankruptcy because of a failed prior business but who still have high incomes. The decision will hopefully be appealed but unless overturned by a higher court, this decision may lead to more debtors having to use Chapter 11 as a way to eliminate debt from a failed business. 

MORTGAGE MODIFICATIONS

A new report released in January 2013 from the National Consumer Law Center (NCLC) reveals both the successes and failures of mortgage modification programs used by top mortgage lenders and servicers such as Wells Fargo, Chase, U.S. Bank, Citimortgage and others. According to the report, as many as ten million homes are still estimated to be at high risk of foreclosure, with nearly four million foreclosures having been completed between 2007 and 2012. The report looks at the track record of the Home Affordable Modification Program (HAMP), created in 2009 to address the need for mortgage modifications by defaulting homeowners. NCLC found that while HAMP had successfully modified many mortgage loans, massive lender noncompliance had prevented the program from helping all the homeowners it could. In particular, NCLC said lenders violated HAMP by continuing foreclosures without first evaluating homeowners' eligibility for modification; mistakenly or falsely claiming investor restrictions as the reason for denying a modification; and failing to provide required notices. 

As of October 2012 over 14.5 million homeowners were delinquent on their mortgage by more than 60 days. Over 4.3 million homeowners had applied for a HAMP modification but only 1.1 million permanent modifications had been started. Even with the relatively small number of HAMP modifications in place, however, NCLC found that they were still more successful then the non-HAMP modifications mortgage lenders and servicers are more likely to approve. It's not uncommon for a homeowner who applies for a HAMP modification to be told that while they don't qualify for a HAMP modification, the lender or servicer has their own internal modification programs available. In fact, the vast majority of mortgage modifications are not done through the HAMP program but through a lender or servicer's own internal program. NCLC found a big difference between the HAMP modifications and the more common non-HAMP modifications. Over 80% of HAMP modifications are still performing within one year of the modification and they are less likely to default again and lead to foreclosure. But non-HAMP modifications that lenders and servicers push have re-default rates in the first year in excess of 35%. Some of the reasons for these higher default rates for non-HAMP modifications include the fact that there is no requirement that payments be affordable, lenders may require large upfront payments and many homeowners actually lose equity in their homes through non-HAMP modifications. For example, the report cited Chases' internal modification program that extends the term of the loan before doing anything else, leading to tens of thousands of additional dollars in increased interest. The report also found that, in contrast to popular belief, mortgage servicers have significant financial incentives to not approve modifications. Servicers in particular receive a lot of money from foreclosure fees and have little incentive to make modifications for homeowners. 

HAMP is set to expire at the end of this year but since most lenders and servicers push homeowners into non-HAMP modifications anyway, its expiration may not be widely noticed. More importantly, homeowners need to consider all alternatives to the mortgage modifications being offered by their lender or servicer. For example, a Chapter 13 bankruptcy that cures a mortgage default, possibly strips off a second mortgage and preserves existing equity might be far more beneficial. Before agreeing to any mortgage modification contact us at Nancy L. Thompson Law Office, P.C.  

How Does A "Chapter 20" Bankruptcy Work?

Most people are familiar with Chapters 7, 11, 12 and 13 of bankruptcy. Chapter 12 is for family farmers. Chapter 11 is often used by large corporations. Chapters 7 and 13 are used for consumers. But what's a "Chapter 20?" You won't actually find mention of Chapter 20 anywhere in the bankruptcy code but it's the commonly used name for a Chapter 13 following a Chapter 7. But why would anyone file two bankruptcies, one right after the other? Here are two examples of how a Chapter 20 might work.

A debtor who qualifies for a Chapter 7 but has significant nondischargeable debt, like taxes, back child support or student loans, could choose to file either a Chapter 7 or 13. If the debtor files just a Chapter 7 he or she will still leave bankruptcy with a lot of debt. If the debtor files just a Chapter 13 some or all of the nondischargeable debt will be paid through the Chapter 13 plan, but some of the dischargeable debt might be also, perhaps reducing how much money goes to the nondischargeable debt. A better approach might be to file the Chapter 7 first so all the debt that can be discharged will be eliminated. After the discharge, file a Chapter 13 to pay only the debt that couldn't be discharged in the Chapter 7. The Chapter 13 then focuses all the debtor's resources on paying the debt that needs paid. 

Another way Chapter 20 can be used is to file a Chapter 7 to discharge all unsecured debt, followed by a Chapter 13 to strip off a second mortgage or to cram down a motor vehicle or other secured property, neither of which can be done in a Chapter 7. This Chapter 20 then becomes a way to not only discharge all the debt that can be discharged but also to restructure secured debts.  

If you think a Chapter 20 might make sense in your situation contact us at Nancy L. Thompson Law Office, P.C..

FORECLOSURE SCAMS: BEWARE!

Scam-artists are trying to cheat Iowans caught up in the nationwide foreclosure crisis. Mortgage foreclosure "rescue" schemes ask you to pay thousands of dollars up-front for so-called assistance or "rescue" from foreclosure -- but they just take your money and do little or nothing to help. The scam puts you in a deeper financial hole, does nothing to save your home and diverts you from getting real help. The Iowa Attorney General's Office has received scores of complaints from families conned into paying thousands of dollars to companies that promised to help them obtain a loan modification and avoid foreclosure. But then the con-artists did little or nothing to help. The Iowa Attorney General offers these warning signs of foreclosure "rescue" scams:

• Beware of Internet ads promising loan modifications.
• Be wary of solicitations that come by phone, mail, e-mail, or even to your door. Information about people facing foreclosure is included in public court records.
• Watch out for solicitations from out-of-state law firms. Most are foreclosure rescue scams in disguise.
• Beware if someone claims to have a "special relationship" with your lender or "servicer" (they don't). Beware if they tell you not to talk to your lender or servicer directly because that's just what you should be doing.
• Beware if they ask for payment "up-front." It's illegal in Iowa to charge any fee until all services under the contract are provided.     

Don't delay. If you are facing difficulty making payments, or facing the threat of foreclosure, take steps now to save your home but don't fall for "mortgage rescue" loan modification schemes that will only make your situation worse! The earlier you get true assistance the more likely you can save your home. Chapter 13 bankruptcy is often the best method of saving a home and discharging other debt at the same time. It's also possible that a Chapter 13 could be used to eliminate second or third mortgages that are wholly unsecured. The important point is to seek help long before a sheriff's sale is scheduled. In addition, victims of foreclosure scams may have a right to get their money back plus damages. Contact us at Nancy L. Thompson Law Office, P.C. to discuss your situation as soon as you see a foreclosure problem ahead.

SHERIFF SALES

According to the latest reports, over 4000 Iowans who have a Fannie Mae or Freddie Mac mortgage loan are delinquent in their payments. The number of delinquent borrowers is even higher when you include non Fannie or Freddie loans. For some delinquent borrowers a sheriff's sale is the final step to getting out from under a home they can't afford. Many people are deciding to walk away from mortgages that now far exceed the value of their home and their monthly budget. But other borrowers are just as committed to trying to save their home. Unfortunately, the methods being used to avoid foreclosure aren't always as successful as people hope they'll be. Lost paperwork, unkept promises and long delays are common complaints among people seeking mortgage loan modifications. Some clients give up after years of trying.

If you're able to get a modification that results in a significant interest rate and reduction in the principal owed it can be a good start to getting back on your feet. But the majority of loan modifications involve only interest rate reductions and an extension of the term, meaning that the payments in default are added to the back of the loan. Interest in default is capitalized or added to the principal so that a borrower now has an even larger loan balance and is paying interest on interest. Borrowers offered these type of modifications need to seriously consider whether a Chapter 13 bankruptcy, where no interest is paid on the arrearage and the loan balance never increases, wouldn't be a better option. Although interest rate reductions aren't available in a Chapter 13 bankruptcy, it is possible to strip off mortgages that are wholly unsecured. For example, second and third mortgages that are no longer supported by equity in the house can be stripped off and treated like credit cards.

Whatever option a borrower chooses, it's important to not let the process drag on. More than once in the last few months we've been contacted by homeowners who had been told by their mortgage lender they would receive a loan modification only to have their home sold at sheriff's sale. When foreclosure is imminent contact us at www.thompsonlawoffice.net to discuss your options and decide whether a loan modification or Chapter 13 bankruptcy would be the best way to avoid a sheriff's sale.

ELEVEN REASONS TO CHOOSE FILING CHAPTER 13

1. Catch up on back mortgage payments at 0% interest.
2. Catch up on car loan payments and repay vehicles loans at low interest rates.
3.  "Cram down" the loan on a vehicle or other property purchased more than two and 1/2 years ago to its fair market value. 
4. Recover recently repossessed vehicles and repay the loan at low interest rates over time.
5. Strip off your underwater 2nd or 3rd mortgages.
6. Discharge property settlement obligations from a divorce decree. 
7. Repay recent tax debts and back child support over time.
8. Protect non-exempt property at risk in a Chapter 7.
9. Repay private student loans on your own terms.
10. Protect co-debtors on loans being repaid in full through the Chapter 13 from further debt collection.  
11. Retain the ability to pursue prepetition claims against creditors for unfair debt collection or consumer fraud.      

Contact us at www.thompsonlawoffice.net if you want to discuss these aspects of Chapter 13 more.

Judge Sanctions Credit Union

Last fall one of my Chapter 13 clients came to me with complaints that a credit union listed in his bankruptcy as a creditor was sending him letters demanding payment of a debt already being paid through his Chapter 13 plan. The credit union certainly knew of the bankruptcy because it had filed a proof of claim and had received monthly payments from the trustee for over three years. We advised the client to wait until the credit union had sent multiple letters and then we filed a motion against the credit union for violation of the automatic stay.

The automatic stay protects debtors while they're in bankruptcy from the continued collection of debts by their creditors. We received an Order from the U.S. Bankruptcy Court in favor of our client. The court's Order states in part that, "Congress intended the automatic stay to stop "all collection efforts, all harassment, and all foreclosure actions and prevent creditors from attempting in any way to collect a pre-peition debt." The Judge awarded our client $500 for every letter he had received and awarded our attorney's fees so our client had to pay nothing in attorney fees and got money from the credit union also.

The lesson here is that if you're a bankruptcy client in either Chapter 7 or Chapter 13 please notify us immediately at www.thompsonlawoffice.net of attempts to collect a debt listed in your bankruptcy. Keep your documents and phone logs as evidence. The same is true for clients who have already received their bankruptcy discharge. We can obtain the same kind of damages for discharge violations against creditors that continue to try to collect debts after a bankruptcy discharge has been granted.

Discharging Student Loans in Bankruptcy

Increasingly, one of the most common questions we're asked is whether you can discharge student loans in bankruptcy. Until 1998 student loan debtors were able to discharge some loans if they were old enough. But in 1998 Congress changed the law to make it harder to for student loan debtors to get relief. Restrictions on the discharge of student loans were first applied just to federal loans but in 2005 they were extended to private loans as well. This has created tremendous hardship for borrowers with ever increasing student loan debt.

Despite the increased restriction on discharging student loans in bankruptcy, it is still possible under some circumstances and some recent court decisions in Iowa and the 8th Circuit, where Iowa is located, has provided some hope for borrowers. To get a discharge, student loan borrowers must prove that they have an "undue hardship". In Iowa the test for determining what makes an undue hardship is (1) the debtor's past, current, and reasonably reliable future financial resources; (2) the debtor's and the debtor's dependent's reasonably necessary living expenses; and (3) any other relevant facts and circumstances. The 8th Circuit Court of Appeals recently used this test to discharge the student loans of a family with children with significant medical issues and a bankruptcy judge in Iowa also recently used the test to discharge the student loans of a family with income so low that they would never be able to repay all the loans.

This recent case history illustrates that although it's difficult to prove an undue hardship sufficient to get a discharge of student loans in bankruptcy, it's not impossible. If you think you have the right circumstances to warrant a student loan bankruptcy discharge, please email us at melissaatthompsonlaw@gmail.com so we can review your case.

For more information go to my website at www.thompsonlawoffice.net.