You Deserve a Fresh Start in 2014

The New Year is a good time to evaluate your financial house and consider whether getting a fresh start by filing bankruptcy is the best option for you.

If you have too much debt or feel like you are way over you head in bills, bankruptcy may be right solution for you to get a fresh financial start in 2014.

Bankruptcy wipes out all credit card bills, medical bills, and personal loans. It even erases deficiencies on short sales and repossessed vehicles.

Filing bankruptcy initiates a Court ordered “automatic stay.” The automatic stay immediately stops your creditors from trying to collect from you. Creditors are immediately stopped from garnishing your wages, repossessing your car, or selling your house or other assets at a sheriff sale.

The first step is to make an appointment to meet with an experienced bankruptcy attorney to discuss your financial options. The consultation is free. I don’t judge my clients and always treat everyone with the respect they expect and deserve.

Stephen M. Dunne, Esquire has been consistently voted and named one of Pennsylvania’s Bankruptcy Super Lawyers by Law and Politics published by Philadelphia Magazine and Pennsylvania Super Lawyer for the years 2011-2013.

If you know someone who needs a fresh financial start in 2014, please tell them that I can help them make 2014 the year for a fresh financial start.

Call Today: 215-551-7109.

Detroit Bankruptcy – Pensions Aren’t Protected From Cuts

Retirees like Gwendolyn Beasley, 67 years old, who worked 34 years for Detroit as a library clerk has an annual pension of $13,085. Ms. Beasley’s pension could be decimated in the very near future.

A judge declared Detroit eligible for bankruptcy and ruled that pensions aren’t protected from potential cuts. Five months after the city filed for Chapter 9 protection, U.S. Bankruptcy Judge Steven Rhodes said Detroit was entitled to reorganize under bankruptcy law, describing his ruling as a “fresh start” for the city.

Judge Rhodes said Detroit’s public pension holders aren’t entitled to special protection from potential cuts – despite a Michigan state constitutional provision aimed at shielding pensions. “Pension rights are contract rights under the Michigan constitution” and contracts are at risk for cuts under federal bankruptcy law.

Detroit plans on unveiling a proposal in January 2014 to restructure its estimated $18 billion in long-term debt, which makes it the largest-ever municipal bankruptcy in U.S. History.

The city’s unfunded pension liability has been estimated at between $3.5 billion and $8 billion.  The pension funds would undoubtedly receive only a fraction of what they are owed. The pension cuts will have a devastating on city employees and retirees who hoped state law would protect their pensions.

Does Bankruptcy Erase Domestic Support Obligations?

What’s a Domestic Support Obligation?

A debt that is in the nature of alimony, maintenance or support of a spouse, former spouse or child of the debtor (now defined by the term “domestic support obligation” — often shortened to “DSO”) is not dischargeable in either a chapter 7 or chapter 13 bankruptcy case. See 11 U.S.C. §§ 523(a)(5); 1328(a)(2).

A debt owed to a spouse, former spouse or child of the debtor, that is not a DSO, but that is incurred “in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record” is nondischargeable in a chapter 7 case. See 11 U.S.C. § 523(a)(15).

What’s a Non-Domestic Support Obligation?

A non-DSO marital obligation encompassed by 11 U.S.C. § 523(a)(15) is dischargeable in a chapter 13 case. See 11 U.S.C. § 1328(a)(2) (incorporating by reference certain chapter 7 non-dischargeability provisions, but excluding § 523(a)(15).

The characterization of a debt as a DSO or a non-DSO marital obligation is a question of federal bankruptcy law. See In re Gianakas, 917 F.2d 759, 762 (3d Cir.1990). Generally speaking, when an obligation is derived from a marital settlement agreement entered into by the parties, determining whether the obligation is in the nature of alimony, maintenance or support, as distinguished from a property settlement, depends on the intent of the parties at the time of the settlement agreement.

Is the Domestic Support Obligation dischargeable?

Whether a domestic support obligation is in the nature of support so as to be non-dischargeable, as distinguished from property settlement, depends on the finding as to the intent of the parties at the time of the settlement agreement, which can best be found by examining three principal indicators:

1. First, the court must examine the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary;
2. Because the language of the agreement alone may not provide a sufficiently conclusive answer as to the nature of an obligation, the second indicator is parties’ financial circumstances at the time of the settlement. The facts that one spouse had custody of minor children, was not employed, or was less employed in less remunerative position than the other spouse are aspects of the parties’ financial circumstances at the time the obligation was fixed which shed light on nature of obligation as support;
3. Third, the court should examine function served by the obligation at the time of the divorce or settlement. An obligation that serves to maintain daily necessities such as food, housing and transportation is indicative of debt intended to be in the nature of support. Bankr.Code, 11 U.S.C.A. § 523(a)(5).

Guidelines that determine whether a marital obligation is in the nature of support

A leading bankruptcy treatise breaks out the three (3) Gianakas factors into a more expansive set of factors for a court to consider in distinguishing DSO’s from property division obligations:

1. The labels in the agreement or court order;
2. The income and needs of the parties at the time the obligation became fixed;
3. The amount and outcome of property division;
4. Whether the obligation terminates on obligee’s death or remarriage or on emancipation of children;
5. Number and frequency of payments;
6. Waiver of alimony or support rights in agreement;
7. Availability of state court procedures to modify or enforce obligation through contempt remedy;
8. Tax treatment of obligation.

4 Collier ¶ 523.11[6][a]–[h].

What happens if the court determines that the marital obligation is in the nature of support?

A DSO is granted priority status in a bankruptcy case. As such, it must be provided for in a debtor’s Chapter 13 plan. A debtor’s Chapter 13 plan “shall provide for full payment, in deferred cash payments, of all claims entitled to priority under the Bankruptcy Code.”

What happens if the court determines that the marital obligation is in the nature of a property settlement?

A determination that the marital obligation is in the nature of property settlement will result in the debt been treated as a general unsecured claim in the Chapter 13 plan. Most unsecured creditors are paid pennies on the dollar in a Chapter 13 case.

Rapper DMX files Bankruptcy

DMX (Born Earl Simmons) filed for Chapter 11 bankruptcy due to poor financial management. The Chapter 11 petition lists less than $50,000 in assets and $1 million to $10 million in debt. The New York native owes $1.24 million in child support and more than $21,000 on an auto lease.

Can Child Support be Erased?

No. Child support cannot be erased or legally discharged in a bankruptcy case but Chapter 11 bankruptcy does allow debtors to propose a reasonable repayment plan to cure the child support arrearage.

Why did DMX file Bankruptcy?

The State Department will not issue a passport to anyone that has more than $2,500.00 in child support arrearage. DMX has an upcoming international concert tour and the filing of the bankruptcy case allows him to get his passport back and travel abroad.

What happens in a Chapter 7 bankruptcy case?

What happens in a Chapter 7 bankruptcy case?

Chapter 7 bankruptcy cases are usually straightforward.  On rare occasions, complications arise if creditors take aggressive action, if the trustee thinks you are hiding assets, or if you want to challenge creditors’ claims.

Who can file?

Any individual who lives in the United States or has property or a business in the United States can file a chapter 7 bankruptcy. If you received a chapter 7 bankruptcy discharge within the past eight years, you are disqualified from receiving a discharge in chapter 7. A similar disqualification may also apply if you received a discharge within the past six years in a chapter 13 case in which your unsecured creditors were paid less than 70% of what they were owed.

 

What is the means test?

In 2005, Congress added the “means test” to the bankruptcy law to make it more difficult for wealthy consumers to file chapter 7 bankruptcy. Most consumers who file for bankruptcy are not affected by this change. If your income is below the median in Pennsylvania, you are protected by a “safe harbor” and not subject to the means test. The current median family income figures for Pennsylvania are available on the website for the Untied States Trustee Program at: http://www.usdoj.gov/ust.

What are the first steps?

The first step in a chapter 7 bankruptcy is completion of certain basic forms. These include a three-page initial “petition.” You will also need to file a certificate from an approved credit counseling agency.  A number of other forms must also be filed either at the same time of the petition or shortly afterwards. These include your statement of financial affairs, statement of intentions with respect to certain secured debts, statement of monthly income and means test calculations, copies of any pay stubs you received from an employer during the sixty days before filing your bankruptcy case; and a set of schedules listing all your debts, assets, income, and expenses. It is important that all of these forms be filled out completely and accurately.

What are common mistakes?  

A chapter 7 bankruptcy is often called a “liquidation” bankruptcy because the debtors assets are examined by the court appointed  trustee and any “unexempt” assets are typically sold for the benefit of creditors.  Frequently overlooked assets include tax refunds, child support arrearages, security deposits, pledged goods at pawnbrokers, personal injury claims, other legal claims, and the cash value of life insurance policies.

Is Bankruptcy the Right Choice for You?

1. Bankruptcy may be the easiest and fastest way to deal with all types of debt problems.Bankruptcy is a process under federal law designed to help people and businesses get protection from their creditors.

2. Most bankruptcy cases are complicated. You should consider getting professional help.Bankruptcy is a legal proceeding with complicated rules and paperwork. You may want to get professional legal help, especially if you hope to use bankruptcy to prevent foreclosure or repossession. Dunne Law Offices, P.C. provides a free consultation to help you decide whether bankruptcy is the right choice.

3. Bankruptcy temporarily stops almost all creditors from taking any steps against you. This assistance is provided by the “automatic stay” that arises as soon as you file the necessary paperwork at the beginning of a bankruptcy case. Foreclosures, repossessions, utility shut-offs, lawsuits, and other creditor actions will be immediately stopped.

4. Bankruptcy can permanently wipe out your legal obligation to pay back many of your debts. This benefit arises because of the bankruptcy “discharge” that you get for successfully completing a bankruptcy case.

5. When a bankruptcy does not wipe out a debt, a chapter 13 bankruptcy (a “reorganization”) gives you the opportunity to catch up on that debt. For example, if you are behind on a home mortgage or car loan, bankruptcy will not usually allow you to cancel the mortgage or lien and still keep the property without repayment. If you want to deal with debts of that type in the bankruptcy process, you will need to propose a chapter 13 repayment plan. That requires affordable payments from your income over a period of three to five years.

6. The initial fee for bankruptcy is presently $306 under chapter 7 and $281 under chapter 13. The fee can be paid in installments over a period of 120 days.

7. If you file bankruptcy in Philadelphia, you usually do not need to go to court.You will have to attend one meeting with the bankruptcy trustee (not with a judge). Creditors are invited but rarely attend. You will not usually have to go to court for your bankruptcy case unless something out of the ordinary occurs.

Bank Deposits Guaranteed Up to $250,000 – Maybe

Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933 to ensure taxpayers were not on the hook for losses to depositors.

Today, FDIC stickers in every bank in America proclaim “Each depositor is insured to at least $250,000.”

 Is it possible for bank depositors to take losses on their deposits? Yes.

 Banks insure their own deposits through contributions to an insurance fund. Banks and the general public both falsely believe that the government will “pony-up” the cash if the insurance fund is depleted and protect taxpayers from a loss on their deposits.

However, Congress has never enacted a provision in law stating that insured deposits are guaranteed by the full faith and credit of the United States.

Congress has never legally guaranteed deposits.

Congress wants people to have “confidence” in the banking system and adopted a joint resolution in 1982 stating that it was the “sense of Congress” that insured deposits were backed by the credit of the United States. However, this resolution never became legal binding.

Henry Steagall, chairman of the House Banking Committee described the situation succinctly “I do not mean to be understood as favoring a government guaranty of bank deposits,” he said. “I do not. I have never favored such a plan.”

Let’s hope the banking and government-debt crisis in Cyrus doesn’t happen in the United States.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness  (PSLF) Program discharges any remaining debt after 10 years of full-time employment in public service. The borrower must have made 120 payments as part of the Direct Loan program in order to obtain this benefit. Only payments made on or after October 1, 2007 count toward the required 120 monthly payments.

 What is forgiven? The remaining interest and principal of the borrowers loans are forgiven.

 How many payments are required? The loan forgiveness occurs after 120 monthly payments made on or after October 1, 2007 on an eligible Federal Direct Loan. Periods of deferment and forbearance are not counted toward the 120 payments. Payments made before October 1, 2007 do not count.

Define public service employment? The borrower must be employed full-time in a public service job for each of the 120 monthly payments. Public service jobs include, among other positions, emergency management, government , military service, public safety and law enforcement (police and fire), public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations), public education, early childhood education (including licensed or regulated childcare, Head Start, and State-funded prekindergarten), social work in a public child or family service agency, public services for individuals with disabilities or the elderly, public interest legal services (including prosecutors, public defenders and legal advocacy on behalf of low-income communities at a nonprofit organization), public librarians, school librarians and other school-based services, and employees of tax exempt 501(c)(3) organizations. Full-time faculty at universities, as well as faculty teaching in high-need subject areas and shortage areas (including nurse faculty, foreign language faculty, and part-time faculty at community colleges), also qualify.

Which loans qualify for the PSLF Program?  Eligible loans include Federal Direct Stafford Loans (Subsidized and Unsubsidized), Federal Direct PLUS Loans, and Federal Direct Consolidation Loans. Borrowers in the Direct Loan program do not need to consolidate in order to qualify for loan forgiveness. Borrowers in the FFEL program will need to consolidate into Direct Loans.

What should I do now? Submit the Employer Certification Form  to the US Department of Education annually  to ensure that the qualifying public service employment is properly recorded.

How do I erase my loans under the PSLF Program?  File a PSLF application with the US Department of Education after making 120 qualifying payments while working full-time in a qualifying public service job.

Repayment Strategies for Getting Out Of Student Loan Default

The two primary ways to get out of Student Loan Default are through Consolidation and Rehabilitation.    The first step is to research your student loan online and determine what kind of loans that you have under your account.

Check the following website to research all federal student loans: http://www.nslds.ed.gov/nslds_SA/

 1.     Consolidation:

Borrowers can consolidate their defaulted student loans into a new Direct Consolidation Loan with a repayment plan tied to their income. After obtaining a Consolidation Loan, the borrower gets a fresh start with a new loan.  As of July 1, 2010, Direct Consolidation Loans are the only type of federal consolidation loans available. All federal loan borrowers may obtain Direct Consolidation Loans. However, they must have at least one Federal Family Education Loan (FFEL) or Direct Loan Program Loan (Direct Loan) to qualify for consolidation.

There are drawbacks and limits to consolidation as a way out of default. Borrowers should understand that the balance will increase after consolidation due to the addition of collection fees. One of the most important limits is that defaulted Direct Consolidation Loans may not be reconsolidated. In effect, this means the borrower has only one shot at consolidating as a way out of default.

To obtain a Direct Consolidation Loan, borrowers in default either have to make three (3) consecutive reasonable and affordable payments based on their total financial circumstances or agree to select an income-contingent repayment plan (ICRP) or income based repayment (IBR) plan.

 Payments Are Not Required to Get Out of Default Through Consolidation

Unfortunately, the Department of Education and Collection Agencies often claim inaccurately that all borrowers must make preliminary payments (sometimes three, sometimes six) in order to consolidate out of default.

This misinformation derives from the Department of Education’s monetary incentive system which motivates Collection Agencies to lie, cheat and steal from borrowers with limited means. The monetary incentive system disproportionately rewards Collections Agencies if borrowers make payments prior to consolidation. It is important to know that this is not the law and does not have to be followed in order to be successful at pursuing a consolidation to get out of default.

Furthermore, if a borrower applies directly to the Direct Loan Program for consolidation and does not use the Collection Agency as a middleperson, the agency will generally not earn any fee.

There is no charge to obtain a Direct Consolidation Loan. Borrowers may apply by regular mail, on-line, or by phone under certain circumstances. Borrowers may request an application by calling the current toll-free number, 1-800-557-7392 or, for TDD, 1-800-557-7395. Borrowers can also apply for Direct Consolidation Loans on-line at https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Disability Discharge of Federal Student Loans

The borrower’s permanent and total disability is grounds for a student loan discharge. Borrowers with FFELs, Direct Loans, and Perkins loans are eligible for this discharge.[1] This includes consolidation loans.

The definition of disability changed as of July 1, 2010. The new definition is less restrictive and is more favorable for borrowers because it allows discharges to be granted to borrowers who are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, can be expected to last for a continuous period of 60 months, or has lasted for a continuous period of 60 months.[2]

The borrower applies directly to the loan holder for a disability discharge. If the borrower has different loan holders, the borrower should submit a separate application to each loan holder.

In order to help ensure a more efficient application process, borrowers should follow these guidelines from the Department:

1. Be sure to sign the application. A photocopy must contain an original signature.
2. Separate applications must be submitted to each loan holder. Copies may be submitted. However, each copy must have an original borrower signature. Original physician signatures are not required on each copy.
3. The application must be signed by a doctor of medicine or osteopathy who is licenses to practice in the United States.
4. The doctor must complete the application.
5. Doctors should not use medical abbreviations or insurance codes on the application.
6. The doctor must provide more than a diagnosis. The doctor must also identify the medical condition and clearly and fully explain how the condition prevents the borrower from working and earning money.

The lender may continue collection activity until it receives the certification of disability.  The borrower may request an administrative forbearance to stop collection activity during the review period.

It is important for borrowers to realize that the Department of Education has a very high rate of denials due to “medical review failures.” However, the denial is not tied to an actual medical review. Instead, this is a generic denial category that can mean anything from a missing license number to the physician forgetting to check a box on the application form. The Department of Education often sends a follow-up letter to physicians that require a relatively prompt response and failure of the physician to timely respond may lead to a medical review failure. Borrower should not assume that a denial based on a medical review failure is tied to an actual medical review.

The Department of Education has set up a Disability Discharge Loan Servicing Center. The center can be contacted by phone at 1-888-869-4169, by email at disability_discharge@acs-inc.com, or by regular mail at U.S. Department of Education Disability Discharge Loan Servicing Center, P.O. Box 5200, Greenville, TX 75403-5200. Hearing impaired individuals with access to TDD can call 1-888-636-6401.

If borrower obtains a discharge, the balance of the loan is discharged.[3]

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

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[1] 20 U.S.C. § 1087(a); 34 C.F.R.  §§ 674.61 (Perkins Loan), 682.402(c) (FFEL), 685.213 (Direct Loan).

[2] 34 C.F.R. § 682.200

[3] 34 C.F.R. § 682.402(c)(3)(ii).