Showing posts with label Steve Rhode. Show all posts
Showing posts with label Steve Rhode. Show all posts

Friday, April 21, 2017

Recent Navient and National Collegiate Student Loan Bankruptcy Rulings – March 2017: A Must-Read Article by Steve Rhode

If you are overwhelmed by your student loans and thinking about filing for bankruptcy, you should read this essay by Steve Rhode. Mr. Rhode examined recent bankruptcy court adversary proceedings in which student borrowers brought complaints against Navient or National Collegiate Student Loan Trust. As Mr. Rhode relates, debtors often won significant relief in these lawsuits--sometimes through settlement agreements.

Why is Mr. Rhode's article important to you?

First, his article contains links to adversary complaints that were drafted by attorneys. If you file your own adversary complaint against your student-loan creditor, you can use these complaints as templates to file your own complaint.

Second, the proceedings Mr. Rhode examined show various theories under which debtors sought to have their loans discharged. Some of those theories might work for you.

I am frankly surprised that debtors were so successful in the cases Mr. Rhode analyzed. I wonder whether Navient and National Collegiate Student Loan Trust are more amenable to settlement than Educational Credit Management Corporation and the U.S. Department of Education. ECMC and the Department of Education have opposed bankruptcy relief in a multitude of cases, even in cases where it was clear the debtor was desperate. (See for example, Roth v. ECMC and Abney v. U.S. Department of Education.)

Mr. Rhode has presented us with a very useful analysis of recent adversary proceedings against Navient and National Collegiate Student Loan Trust. A trend may be developing toward better bankruptcy outcomes for distressed student-loan debtors. Wouldn't that be a terrific development?




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Out of curiosity I decided to take a look at recent bankruptcy Adversary Proceedings that had closed against Navient and National Collegiate Student Loan Trust. I looked at a number of cases and it appears people who filed their own Adversary Proceeding against their student loan holders had a less favorable outcome. Those people represented by an attorney, fair better.

At the very least, while the debt may not have been completely eliminated there were certainly some very deep discounts in the amount owed. Also the outcomes in all cases is not always apparent.

For example in Medina v. National Collegiate Student Loan Trust there was an apparent settlement agreement that contained a “release of liability. The Adversary Proceeding was then dismissed. – Source

Medina had asserted in his lawyer prepared complaint that his student loans should be discharged because his flight school was a “sham,” the loans were not used for a qualified educational purpose, and the school was not properly certified. These are issues raised over in this article. – Source

In the case Ard-Kelly v Sallie Mae the debtor owed $913,997 in loans. Of those loans all but $250,595 could be included in a $0 monthly Income Contingent Repayment plan. – Source

It appears all but $219,070 was found to be dischargeable in bankruptcy. While $219,070 is still a lot of money, it’s only 24% of the original balance stated. – Source

In Cotter v. Navient, the debtor had filed a Chapter 13 bankruptcy but was said to have still owed about $29,000 in student loan debt. Cotter stated, “Plaintiff incurred this student loan attending a school named ComputerTraining.com. The campus was located at 550 Polaris Parkway Westerville Ohio 43082. The Plaintiff started classes at said school on November 16, 2007 and was able to finish however the education he received was substandard, outdated and useless to him. Furthermore the school promised lifetime job placement assistance along with assistance with interviewing and resumes. The school he attended closed soon after he finished. The school in question is currently part of a class action lawsuit for fraud.” – Source

Following the court action regarding this debt the $29,000 balance was reduced to $2,500 with payments of $35.79 per month at 1% interest. This is about a 92% reduction in the amount owed. The debt will be fully repaid in 72 months. – Source

In Proctor v. Navient the debtor had co-signed for student loans for someone who was not a relative or dependent and said to not be qualified student loans protected in bankruptcy. – Source

The $188,787 balance was reduced to $15,535 at 3% interest and payments of $107.28 per month for 180 months. This is about a 92% reduction in the amount owed. – Source

So as you can see, recent closed bankruptcy Adversary Proceeding cases do result generally in some significant reductions in debt owed.

Steve Rhode
Get Out of Debt Guy
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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Trump Administration Cancels Grace Period and Adds on Big Student Loan Collection Charges: Article by Steve Rhode

This excellent essay by Steve Rhode appeared earlier on the Personal Finance Syndication Network, PFSyncom and on Mr. Rhode's web site titled Get Out of Debt Guy.  contains a variety of good advice and information about all manner of consumer debt problems, including student loans. You can learn more about Steve Rodes here.

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If the recent position by the Department of Education under the Trump administration is any indication of what is to come for federal student loan debtors, watch out.

On March 16, 2017 the Department of Education rolled back protections and policies impacting those who hold FFEL federal student loans. The most recent numbers say about 4.2 million loan holders are in default on these loans at this time. Millions will be impacted by this policy change effective immediately as FFEL loan holder default.

The Obama administration had issued guidance in 2015 that when someone defaulted on a FFEL student loan that they had 60 days to bring the loan back into compliance and current and avoid the tacked on collection charges of up to 16% of the loan balance. This could be accomplished through programs such as the student loan rehabilitation program. It would all debtors to get back on track without exploding their student loan balances with massive collection costs beyond the already unaffordable amounts due.

Under the Obama administration policies, “A guaranty agency cannot charge collection costs to a defaulted borrower who, within the 60-day period following the initial notice, enters into a repayment agreement, including a rehabilitation agreement, and who honors that agreement.” – Source

The rationale given for this clarification was the distinction between a debtor who defaulted but intended to repay and one who was not going to make arrangements and thus cost significantly more to collect from. If a debtor defaulted and then entered into a repayment arrangement what would justify 16% of the loan balance in collection costs? Nothing.

But this policy of giving defaulted FFEL loan holders a grace period to get back on a payment plan goes back to the 1980s and 1990s. This was not an Obama policy.

In 1986, the Department of Education adopted regulations to establish the procedures for referring defaulted debt, which include giving the debtor notice of the proposed offset and an opportunity to avoid the offset by entering into a satisfactory repayment agreement. This policy was restated in 1992 when the then Department of Education said “the borrower could avoid the adverse consequences (report of the default status of the debt, liability for collection costs, and further collections actions) by making a timely agreement to repay the debt voluntarily.”

That’s all changed now. According to the “Dear Colleague” letter that was just released, the Trump Department of Education is withdrawing those policies and so debtors who default on FFEL student loans will have no grace period and will now face large collection fees to be immediately tacked on to the loan balance due. In essence, those who can least afford the default will be penalized and have no incentive to rehabilitate their loans. – Source

The Betsy DeVoss Department of Education says the reason to roll back these rules and policies is because there was an insufficient public comment period when the policies were put into place. Does anyone really believe the FFEL student loan debtors would argue against such a policy? It leaves you wondering why the policy could not have been left in place during a new public comment period and then a decision made. To me it sure seems like a Ready-Fire-Aim approach at dealing with student loan collections and student loan debtors in trouble.

But then of course, the immediate and obvious beneficiary of such a position is going to the be collectors and guaranty agencies who administer those loans.

What do you think? Comment below.

Steve Rhode

Get Out of Debt GuyTwitter, G+, Facebook

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance 

Thursday, April 13, 2017

Great article by Steve Rhode: "Trump Department of Education Operating Beyond Logic on FFEL Collection Fee Change"

This excellent essay by Steve Rhode appeared earlier on the Personal Finance Syndication Network, PFSyncom and on Mr. Rhode's web site titled Get Out of Debt Guy.  contains a variety of good advice and information about all manner of consumer debt problems, including student loans. You can learn more about Steve Rodes here.
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A couple of days ago I wrote about the Trump Department of Education under Secretary Betsy DeVos who told student loan guaranty agencies with FFEL federal student loans to disregard the guidance provided by the Obama administration regarding defaults.

That specific 2015 guidance said student loan debtors who defaulted had up to 60 days after default to enter into a satisfactory repayment plan or rehabilitation to avoid up to 16 percent collection fees being added to their balance on day one of default. The logic was that debtors who entered such repayment plans were not going to incur collection fees that warranted adding 16 percent of the student loan balance. Plus there is underlying guidance to support that position.

In a mind blowing twist, the company who was at the heart of the underlying court case who brought this issue to light, USA Funds who is now Great Lake Higher Education, said that even though the Trump administration rolled back the inability to charge the 16 percent collection fee on day one, they are not going to do it.

Great Lakes said, “Since the U.S. Department of Education issued a Dear Colleague Letter on July 10, 2015, our guarantors have not assessed collection fees on borrowers who entered into rehabilitation agreements within 60 days of default on or after July 10, 2015. Notwithstanding the Education Department’s March 16, 2017, decision, prompted by a request from a federal judge, to withdraw that Dear Colleague Letter, the Great Lakes Affiliated Group Guaranty Agencies will continue their practice of not assessing collection costs on borrowers who agree to rehabilitate their loans within 60 days of default.” – Source

So did the DeVos Department of Education even talk to Great Lakes before falling face first into this? Logically you’d assume they didn’t since Great Lakes obviously did not want to reverse course on this.

My favorite quote on this matter came from Danielle Douglas-Gabriel with the Washington Post who said, “In light of the Education Department’s recent action, USA Funds is seeking to dismiss its lawsuit against the agency.” So not only is the collection company at the heart of this issue not going to charge the collection fee but they are dismissing the lawsuit as well.

So what was the purpose at all for the Department of Education to reverse course on this? None I can see. Let me know what you think in the comments below.

Steve Rhode

Get Out of Debt GuyTwitter, G+, Facebook


This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Thursday, April 6, 2017

The Student Loan Crisis is WORSE than the 2008 Housing Crisis: The Return of "The Big Short"

As everyone knows, the housing market collapsed in 2008, triggering a major economic crisis in the United States. The nation descended into recession, and the national economy is still recovering from this catastrophe.

Steve Rhode and others have described a student loan "bubble," and I share these commentators' view that the federal student loan program as it functions now is unsustainable.  Approximately 42 million borrowers collectively owe $1.4 trillion in student-loan debt, and families are beginning to experience sticker shock. Enrollments are declining at the for-profit schools, and nonprofit liberal arts colleges are desperately scrambling to maintain their enrollments.

Many people may think the student-loan crisis--no matter how bad it is--is just a small tremor compared to the 2008 housing crisis, which was an earthquake.

But in fact, the student loan crisis has produced more casualties in terms of human suffering than the housing collapse ten years ago.

Earlier this week, Alan White of Credit Slip, an online news source on economic matters, commented on a housing-data report released recently by the Urban Institute. Based on the Urban Institute's data, White assessed the total damage from the subprime housing crisis. From 2007 to 2016, 6.7 million homes went into foreclosure and another 2 million homes were lost through short sales or deeds-in lieu of foreclosure. Thus the total number of homeowners who lost their homes in the subprime housing debacle is about 8.7 million. If we assume a majority of those homes were owned by married couples, then the total number of individuals who were injured in the housing crisis is about 16 million.

That's a lot of people, but the casualty list from the student loan crisis is larger. 

As the New York Times reported in 2015, about 10 million student borrowers have defaulted on their loans or have loans in delinquency. Almost 6 million debtors are now in income-driven repayment programs (IDRs), and those people are locked into repayment plans that last from 20 to 25 years. A majority of those people are making payments so low they are not servicing accruing interest, which means their student loans balances are growing larger (negatively amortizing) with each passing month.

So we're talking about 16 million people who defaulted, have delinquent loans, or who are in IDRs. And millions more have student loans in forbearance or deferment, which means they are not making payments on their loans but are not counted as defaulters. For most of those people, interest is accruing, which means their student loan balances are growing. The Consumer Financial Protection Bureau reported a total of about 9 million people in deferment or forbearance in its 2013 report titled A Closer Look at the Trillion

All these numbers are fluid. Some delinquent student-loan borrowers will bring their loans current, and some defaulters will rehabilitate their loans. And some people will move from deferment status to some form of IDR.

But it is safe to say--indeed conservative to say--that about 20 million Americans have outstanding student loans they can't pay back. That's 4 million more people that were injured by the housing crisis. It's The Big Short all over again.

Alan and Catherine Murray, who received a partial discharge of their student loans in a Kansas bankruptcy court last year, are the poster children for this calamity. They borrowed $77,000 to finance their studies, and both obtained a bachelor's degree and a master's degree. They paid back $54,000--about 70 percent of what they borrowed. 

But the Murrays experienced hard times and put their loans into deferment for a few years while interest accrued at the rate of 9 percent. They now owe $311,000! Will they ever pay that back? No, they won't.

Yes, the federal loan program is in a bubble, and the suffering has already begun. The federal government is propping up this house of cards and disguising the real default rate. Congress doesn't have the courage to address the problem, and the Trump administration appears to be clueless

We must look to the federal bankruptcy courts for relief. The Murrays obtained a partial dischage of their their loans from a Kansas bankruptcy judge last year, but their case is now on appeal.  

Stay tuned for further developments.

The Big Short


References

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

Editorial, "Why Student Debtors Go Unrescued." New York Times, October 7, 2015, A 26.

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Steve Rhode. The Student Bubble That Many Don't Want To See. Get Out Of Debt Guy, July 15, 2016.

Jill Schlesinger. Looking for the next bubble. Chicago Tribune, August 24, 2016.

Alan White, Foreclosure Crisis Update. Credit Slip, April 5, 2017.

Tuesday, March 21, 2017

Finally, More Bankruptcy Attorneys Getting on the Student Loan Discharge Bandwagon--article by Steve Rhode

This excellent essay by Steve Rhode originally appeared on the Personal Finance Syndication Network, PFSyncom.  Mr. Rhode also maintains a web site titled Get Out of Debt Guy that contains a variety of good advice and information about all manner of consumer debt problems, including student loans.  You can learn more about Steve Rodes here.

In addition to the attorneys listed in Mr. Rhode's article, I would like to commend George Thomas, a Kansas attorney, who did a great job representing Alan and Catherine Murray against Educational Credit Management Corporation  in a Kansas bankruptcy court. Mr. Thomas won a partial discharge of the Murrays' student loan debt. That case is now on appeal.


In addition,Eugene R. Wedoff, retired bankruptcy judge and incoming president of the American Bankruptcy Institute, is defending Alexandra Acosta-Conniff in an Alabama bankruptcy case now on appeal before the Eleventh Circuit Court of Appeals.


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Finally, More Bankruptcy Attorneys Getting on the Student Loan Discharge Bandwagon

 by Steve Rhode


A recent MarketWatch piece by Jillian Berman did a great job of not only naming a bunch of attorneys I’m proud to call friends, but debunking this myth that there is nothing that can be done about student loans in bankruptcy.

I get so frustrated when consumers tell me they went to a bankruptcy attorney and was told there was no hope for dealing with their student loans, when there clearly was.

The article quotes four attorneys who all make the same point, there are legal options for dealing with student loans in bankruptcy. Don’t believe everything you’ve been told that there are no options – That’s Fake News! Want to learn more, here you go.

Attorney Richard Gaudreau is mentioned, “Nobody is doing anything for these people in terms of laws to benefit them,” said Richard Gaudreau, a New Hampshire-based bankruptcy attorney, who’s been working on student loan issues for the past few years. “We’re just forced to be creative.”

And when he says creative, what he’s really saying is applying some brain power and creative thinking to look at the law under new light to find where is already applies to dealing with student loans.

That’s what attorney Austin Smith is doing, and winning.

“Taking that logic one step further means that student loans from private lenders can be discharged in bankruptcy if they were made to students who didn’t attend an accredited program or were lent more money than the cost of attendance. Possible debts that fit into this category could include the aforementioned bar study loan or a loan to attend an unaccredited trade school, Smith said.

“A loan is not like a scholarship or a stipend and such a private loan cannot be included in this definition. If I were to interpret educational benefit to include loans that has some relation to attaining an education, it would render the other two provisions of [the bankruptcy code as it relates to student debt] totally superfluous,” the judge said, according to a transcript.

“I have yet to go in front of a judge who disagrees with my overall thesis, which is that not all student loans are not dischargeable,” Smith said. “I do think the tide is now turning on that.”

Then there is attorney Lewis Roberts, “Roberts’s intervention is to get judges and trustees to classify the federal student loan debt separately so that his clients can take advantage of special payment plans the government offers borrowers to manage their student loans.”

Attorney Jay Fleischman said, “This fight is just in its infancy,” he said. “We’re seeing the birth of it in many ways.”

Steve Rhode

Get Out of Debt Guy  Twitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away. 

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network

Wednesday, February 15, 2017

"Debt and Introspection Are More Related Than You Think": Essay by Steve Rhode

This excellent essay by Steve Rhode originally appeared on the Personal Finance Syndication Network, PFSyncom.  Mr. Rhode also maintains a web site titled Get Out of Debt Guy that contains a variety of good advice and information about all manner of consumer debt problems, including student loans.  You can learn more about Steve Rodes here.

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Debt and Introspection Are More Related 

Than You Think

by Steve Rhode

Steve Rhode
Why are people victims? Why are some people always the brunt of pranks, jokes, gaffes and catastrophes and others are not? Over the years of helping people with financial problems I’ve observed that many people experience not only a financial disaster event but also difficulties in other areas of their life. Is this a coincidence or are there underlying issues that cause us to sabotage our ability to achieve happiness and financial success? Are some people just victims of affairs that involve credit, debt and money? They answer is yes, but why?

There has been little study of victim profiling and when we think of someone as a victim the first thoughts that are present are those of people who have suffered a terrible misfortune beyond their control at the hands of some external event. There are people who are victims of events and situations beyond their control.

For example, people who are randomly murdered, raped, abused, injured or harmed, physically or emotionally. Take disorganized killers for example, their victims are selected because of the opportunity to carryout their act rather than because of anything unusual about the victim themselves. A disorganized killer, as categorized by a serial killer profile, may simply walk up to the next door they come to, ring the bell and kill whoever answers the door. If your time is up, it’s up.

A rape victim may just have simply been the next target of opportunity. Sometimes there is no greater explanation or rationale for their misfortune other than “wrong place, wrong time.” And while we search for a deeper or greater meaning why their life was altered in such a fundamental way by grotesque violence, sometimes life is simply random and chaotic.

Victims of financial problems present similar rationales, Sometimes they were truly disadvantaged by people who duped them.

Recently, a furniture store went out of business, there was no indication that it was in trouble. Every outward sign indicated that the company was stable. Suddenly they go out of business and furniture that previous customers ordered will not be delivered and the status of the deposits left for those orders is undetermined. These folks are truly victim of the transaction. There is no doubt that sometimes events are random and can leave you in financially deficient position. Here is an example that almost everyone has experienced where we lose 100% of our money, vending machines. Sometime they just take your money and don’t deliver the goods. Some people attempt to deliver a couple of well placed smacks and move on. We just accept that it happens sometimes because it does.

In my work helping people with financial problems I’ve observed that while some people suffer from random financial misfortune, there truly is a pattern of financial victims who are often found to repeat the same or similar financial mistakes over and over again. Rather than learn from the situation, they can be seen waving the flag of entitlement and summoning up an army of excuses for this weeks episode of financial misfortune. Can’t you picture the commercial for next weeks show? Stay tuned for up scenes from next weeks show when Bob will lose his job and not have any savings to fall back on because he blew it all on day trading last week. What will Mary say when she finds out? Tune in Tuesday at 8 PM Eastern Time.
What is striking is the number and severity of poor financial decisions some people make. It’s too frequent to just be a random happenstance.

To what degree do we hold people accountable for their individual actions? Is the recipient of misfortune ever to be responsible for their misfortune? Early victim theory in the 1940s actually labeled the person to whom misfortune befouled as a hapless person who brought it on. Since then victim theory has swung to the opposite direction and essentially anyone who is the recipient of anything negative or unexpected is to be cuddled and cajoled and not accept any responsibility for their actions. But it that realistic or healthy? Whatever happened to personal responsibility?

I’ll be honest with you. I hate personal responsibility. I don’t mind accepting responsibility for my actions and the way things turn out. Certainly, life is not always rosy and we don’t always make the best decisions but cut me some slack.

Modern American life not only does not encourage you to be personally responsible, it makes you run from it. We live in such a litigious society that I’m wondering when toilet paper manufactures are going to get sued for excessive chafing. I’m sure they have been already. Maybe toilet paper made out of sawdust wasn’t such a good idea after all gentlemen. Not that I’m bitter about it but ouch, that’s all I’ve got to say on the subject.
My office overlooks the 18th hole on a golf course. I’ve seen all sorts of unusual things on that course. I’ve seen guys playing golf in the dark, near typhoon weather, wearing shorts in sub zero weather and there is even this woman who walks down the center of the fairway from the green to the tee during lunch. For some unexplained reason she has a golf ball, throws it up in the air and smacks it with her hand. She walks to where it lands, picks it up and continues towards the tee. I keep waiting for her to get hit with an oncoming golf ball one day. In my past life, when I was in ophthalmology, I had a patient who was stuck in the eye with a tee shot. It ruptured the eye and she was blind. This is why I never look back on the golf course or in life. I’d much rather get hit in the back with a ball than lose my sight.

When the weather is dangerous, like a big electrical storm, the course blows a siren to warn golfers to get off the course. Most golfers do, some don’t. Some just continue to play so let’s take the golfer who stands with his metal club (lightning rod) pointing skyward during a tremendous electrical storm. If he is struck by lightning, is he partially to blame or is the gold course going to get sued also? Other golfers sought appropriate shelter during the storm by this one places himself in a position of danger, greatly increasing his chances of getting struck and does. Can a victim contribute to the outcome and if so do we serve the victim by simply saying, “don’t worry” or “that’s OK”?

Wouldn’t we serve the victim more by consoling them in their time of need and help them to accept responsibility for their actions which allowed them to be harmed in the first place? Hopefully, they will learn from the error of their ways and not repeat the same mistake again in the future. We do this with children, why not adults?

Financial victims often cry foul because of the actions of others. In fact, they frequently contribute to their misfortune by simply not participating in their financial lives.

For many years I worked in an office. One day in the late 1980’s I decided to pursue my dream and left. I started a real estate company, The Great Virginia Land Company. I thought it would be really cool to work outside all day long. Walking through the country, enjoying nature and making money at the same time. I bought and sold country acreage. When my real estate company was going full force I wanted to make very sure that purchasers of property from me clearly understood the contract they were about to sign which included financing. At first, I would read the contract with them, explain every detail and be available to answer any questions they had. They typically glazed over by the third paragraph. That approach wasn’t working so I made myself available as they read the contract to answer any questions they had. Nobody asked questions and just wanted to know where to sign. I even asked them questions to make sure they had read the contract. Most were put off by my inquisition. Finally, they trained me to just hand them the contract. They would look up and before they could say anything I’d say “here” and point to the signature line. They would look up again and I’d say “here” and hand them a pen.

I used to get excited when I thought someone was going to ask a question about the financing, I wanted to explain it all to them but finally I was beaten into submission by the public’s lack of caring about the contract or financing. The prevailing question was never what the total cost would be, but “what will my monthly payment be?” They didn’t want to be bothered by actually reading or understanding the damn thing. They just wanted what they perceived to be the benefit once they signed the contract.

One day I sold fourteen pieces of property at one time. There were so many people wanting to purchase property from me that I passed out blank contracts, stood on the trunk of my car and as the purchasers all gathered around, like a concert in the park, I shouted out instructions on how to fill in the blanks. “In the first blank, put today’s date.” It was insane but I could not stop the frenzied action. If I had not done it this way, it is very possible that I could have been physically injured. People would get in such a tizzy if they could not sign the contract as quickly as possible. It was frightening at times. One day two people wanted to buy the same piece of property. One person decided to buy it first and the other said they were going to kill me and he had a gun in the back window of his truck. I decided it would be a good time to leave so I calmly walked to the car, jumped in and turned the ignition. Trust me, wrrr-wrrr-wrrr is not the kind of sound you want to hear at a moment like this, the car would not start, the battery was dead and I didn’t want to be. The guy in the pickup truck pulled up and said, “I kill city boys.” To which I could only respond, “Awesome but can I get a jumpstart first?” He gave me the jumpstart and I drove away.

So what did I learn from my experience. I learned people don’t like to see snakes in the grass when they are walking through the woods and they aren’t that interested in understanding consumer transactions.
Inevitably, if a problem ever latter arose from the transaction; the perception was always that they, the purchaser, were the victim, even when the exact and specific situation was clearly spelled out in the contract that they refused to read.

The same is true for almost all consumer credit transactions. People don’t read the agreements they sign and if they do read them they will not or do not ask questions and if they even ask a question and understand the answer, the vast majority of people will sign the agreement anyway as long as they want what they get when they do sign it. So, what level of responsibility do we have to adequately prepare for our financial lives?
Legislators and lawmakers think consumers are too stupid to accept responsibility for their situation. They feel that people don’t read the agreements they sign so we need to protect people from themselves. Is that really how we want to be treated, as stupid lemings?

Recently, I spoke to Richard. I’d had the opportunity to review his credit report before we spoke so it was clear to me that Richard had experienced two episodes of financial trouble in his life. The first about four years ago, the second about two years ago, but why? The debts were for unsecured credit cards, some utilities and local stores. Generally, that indicates someone moving into or out of a new area that is unprepared financially for the event. Clearly Richard’s credit report reflected an episodic history of financial trauma. After talking with Richard I learned that about four years ago he had relocated from Illinois to Iowa. He left behind some unpaid bills and had increased his debt load through the move to a point where he could not repay his bills. Once Richard found a job in Iowa he was able to stabilize his finances and repay most of his debts, he still had some old, very small debts outstanding. He also had some utility bills that were unpaid from his stay in Illinois. Richard said he forgot to change his address so the old bills did not follow him to his new address. In spite of Richards’s inability to notify his creditors, he feels it is unfair that they are hounding him and sent him to collections.

Richard said that he learned his lesson from that move and said he believed he would prepare better next time he relocated. Guess what, Richard did the exact same thing two years latter. He up and moves to California without prior planning. He leaves behind a wake of unpaid obligations and is again unable to find suitable employment in the area he has relocated to. Richard moves back to Iowa. Now, the first time Richard made the mistake of impulsively up and moving, you might say he was young, a few years out of college, and inexperienced in the ways of the world. How can we rationalize making the exact same financial mistakes again? Richard clearly knew what the results of his actions would be. He had lived through them once but yet he did not learn from his mistake and repeated it.
When I spoke to Richard he was clearly angry at his creditors for not being more reasonable when he fell behind on his bills. He was angry and belligerent and felt they should be more understanding.
When Richard moved from Iowa to California, he did not make any prior effort to find employment before he left. He just moved. When Richard arrives in California he is unable to find jobs that pay him even half of what was making before in Iowa. Big surprise. Bet you didn’t see that one coming did you? Now, not only does Richard have to pay for the cost of his move and getting started in a new area, he also has previous obligations he had not yet satisfied.

Soon Richard becomes dissatisfied with California, gives up and decides to move back to Iowa. During the course of his move out and back Richard accumulates approximately 25 thousand dollars of debt on credit cards. He financed his move with credit since he did not have any available cash. He stated “I had to use the cards to live on.” Again, Richard leaves and does not notify his creditors where he is going. Again, Richard ends up on the other end of a collection telephone calls and is sought after for unpaid bills. Is Richard really a victim of his creditors?
Richard has a responsible job but yet cannot exhibit responsible behavior in other parts of his life. Sadly, Richard will probably live through another couple of similar events until his financial situation becomes so fucked up that he files bankruptcy (aka financial cleansing) and possibly begins his cycle of debt over again.
I’ve even had one client who had 78 unsecured credit card accounts totaling a million dollars of outstanding credit card debt. This does not include his other outstanding indebtedness. Is he a financial victim or a credit predator? At what point does a reasonable person stop applying for additional credit?

Consider the following story from Carla who contacted me recently. “My car was repossessed on the 31st of January, on Monday I spoke with the bill collector from the car lender, I informed him of my job, the location, everything down to what I did. He demanded that I Western Union him $126 to him within the hour, even though I told him I get paid on the 1st of Feb. (which was only 5 days from that point) he told me this before just as I have twice promised a payment by Western Union and did not comply. I understand that the bank must repossess the car and I’ve heard horror stories of individuals losing personal items kept in the car at the time of repossession. To the repo man himself or whomever else may like that “pink sweater” for their neighbor. I had piles of clothes in my backseat, a satchel, a stethoscope, a sweater of the utmost sentimental value, a gun, college books, and a CD player that I’m sure they plan on selling to make the money while the factory stereo is in the trunk. (also a gift from a friend.) I will be 21 years old this month and am already in a bad situation, forced to live with a man twice my age, which in the beginning was and I suppose still is by my choice. I recently got a job and had thought things were beginning to look up for me, now I don’t even know where my car is, which impound lot or where I mail payments to? My makeup bag was also in there with around $200.00 worth of makeup not to mention documentation and things of that nature I had in a backpack.”

As an impartial third party, you’ve have to marvel at the dysfunction in this persons financial life. I think the most startling statement is the admission of previous failed promises to pay. Can you really be surprised that the collector ordered the repossession of the vehicle after Carla clearly had make promises to pay and then did not honor them. Several other facts in her email are telling also.

Broken promises are going to come back to bite you in this situation. Did she not understand that when she made payment arrangements with the creditor and failed to meet them that it had a higher probability of not turning out well?

She kept personal items in the car in spite of knowing that a number of payments had been missed and repossession was a definite possibility and imminent.

She keeps a gun in the car. Is she feeling vulnerable and unprotected?

Carla mentions living with a man twice her age and that in the beginning it was her choice. Is she a victim of her relationship? It truly sounds like a relationship of convenience. Carla seems to indicate that she is a victim of the relationship since she is “forced” to live with him. She has created a situation where she has no other place to go so she lives with someone she does not care for simply because he took her in. She admits it was and is her choice to be there, so is she forced?

She got a job and thought things were beginning to look up. This is irrational optimism when it comes to the vehicle situation. Things will only look up when either the missed payments are brought current or an agreed repayment plan is in place. Just because she secures employment she feels the lender should back off. A good example of fantasy thinking.

Carla appears to be helpless in the situation. Does not know where to send payments and has not thought to contact the lender to ask.

She has also been damaged by the loss of stuff in the car. How about the damage caused to the lender by the loss of payments not received? This is not a consideration or point of view of Carla’s.

People commonly refer to “being forced” to do things in their financial lives. Certainly “being forced” is an example of victim thinking. “I was forced to hand him the money.” Generally, people who are forced are not operating under their free will and are under duress.




 

Monday, February 13, 2017

The Student Loan Bubble That Many Don’t Want to See by Steve Rhode

This excellent essay by Steve Rhode originally appeared on Mr. Rhode's web site, Get Out of Debt Guy.  Rhode's web site contains a variety of good advice and information about all manner of consumer debt problems, including student loans.  You can learn more about Steve here.

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Steve Rhode

I can’t help but see the incredible irony in the mortgage collapse that many said would never happen, and the student loan bubble.
The collapse created by the student loan bubble is different but just as catastrophic. As the average debt per student loan borrower continues to climb and federal and private student loan debt grows, the consequences of not dealing with this bubble will be as traumatic as the mortgage failure recession.

The worst thing about these big economic bubbles is the data stares us in the face but most don’t see it.
Unlike the subprime mortgage failure that caused the foreclosure rate to explode and massive job loss, the bursting of the student loan bubble will cause more systemic issues.
When this bubble bursts, and it will, it won’t lead to an immediate collapse but a collapse of the United States to excel in a future world economy. A collapse in the student loan market will place real eduction out of reach of many and put a drag on the overall economy as fewer and fewer people will be able to pay for tuition that outpaces inflation.
Without easy access to student loans and a shrinking student base, schools will have to cut costs to bring tuition back inside available lending. Many schools, public and private, will fail. Public schools will fail as long as states continue to cut state funding for education.
It seems the thing we value least, at times, is education and opportunity for all. States cut funding for public colleges, teacher salaries remain flat, and education lotteries are a misnomer. They don’t really benefit education.
Like the crazy mortgage asset backed securities (ABS) or collateralized debt obligations (CDO) the private student loan industry had been packaging up student loans into trusts an student loan asset backed securities (SLABS).
Like CDOs that Wall Street rating agencies rated, ABS products have ratings as well. Moody’s Investors Service recently downgraded a bunch of these products.
“Moody’s placed 266 tranches in 141 transactions ($44.9 billion) on review for downgrade, 89 tranches in 59 transactions ($3.1 billion) on review for upgrade and 45 tranches in 34 transactions ($2.8 billion) on review with direction uncertain. Moody’s also confirmed the ratings on three tranches ($1.5 billion).
In addition, 101 tranches ($30.7 billion) previously placed on review for downgrade will remain on review for downgrade and four tranches ($1.4 billion) previously placed on review for upgrade will remain on review for upgrade.”
Moody’s goes on to say, ” For most tranches, Moody’s projects cash inflows to be less than sufficient to repay the notes by their final maturity.”
Moody’s also says that the quality of these securities will continue to decline if there is “growing borrower usage of deferment, forbearance and IBR.” – Source
But other people are seeing the same things and making the same connections as well when it comes to the issues created by federal loans.
Jack Du said, “Unlike private lenders, the federal government doesn’t check credit records for student loan borrowers. This leads to many uncreditworthy borrowers qualifying for loans and then being saddled with debt indefinitely with little hope of paying it back. This harkens back to the sub-prime housing loans that drove up the housing bubble. Investors should be wary of how much longer these aggressive student loan lending strategies can be sustained.” – Source
Du also observed, “student loan asset-backed securities seem to be a valuable asset to the economy. However, whether this industry can sustain itself will come down to whether enough borrowers can eventually pay their debt obligations and that is looking like a slim prospect.”
For a college student himself, he’s pretty smart.
So the situation we have is easy to access federal student loans are becoming lifelong debt and lead people to problematic income driven repayment programs.
The private student loan industry is a mess with fractionalized SLABS and the hooks into co-signers they most often won’t release.
It’s a bubble and a mess, all at the same time.

Tuesday, February 7, 2017

All the Bankruptcy Attorneys I Contact Say It’s Not Possible to Discharge Student Loans

Dear Steve,
I am a librarian with two masters degrees living in the Charlotte, NC area. I owe over $120K in student loans, both federal and private, as well as a large amount of unsecured debt thanks to living off credit trying to make student loan payments. I have had to default on my student loan payments in order to pay my other bills and rent. I have already done IBR, however, my federal loan payments are still almost as much as my rent and they will not work with me at all on the private loan amounts, which eat up almost as much as the federal student loans. I have contacted Damon Day for help and received no response.
How do I find a legitimate bankruptcy attorney that is willing to at least attempt to get my student loans discharged in bankruptcy? I am planning to declare bankruptcy, as I see it as the best solution for my financial struggle, however, the attorneys I have been contacting for consultations will not even consider attempting to include my student loans in the bankruptcy case.
Darcey
Answer:
Dear Darcey,
So to give everyone a different point of view on this type of question I’ve answered a lot I asked my friend Professor Richard Fossey to provide his point of view to assist you.
Here is what he wanted to share with you.
“Darcey, my name is Richard Fossey. I am a professor who has followed the student loan bankruptcy process for many years. A few bankruptcy courts have ruled more compassionately in favor of student loan debtors in recent years, but trying to discharge your loans in bankruptcy is still a heavy lift.
The courts seem to be influenced by a number of factors: age and health, children, good faith in making loan payments, etc. As you may have already found out, it is difficult for a student debtor to find a bankruptcy attorney. Debtors generally don’t have the money to hire an attorney, and often the bankruptcy attorneys know nothing about student loans. Many believe that it is impossible to discharge student loans in bankruptcy. You may have already been told that.
Some people have filed adversary proceedings in bankruptcy court to discharge their student loans, acting as their own attorney. One law review article concluded that people filing without attorneys had a success rate comparable to the debtors who were represented by lawyers.
One question only you can answer: what do you have to lose? If you are insolvent and eligible to discharge your other debts in bankruptcy, you might decide–what the heck–and file an adversary proceeding in an effort to get your student loans discharged.
If you do that, you need to know that you will filing a lawsuit without an attorney and will be opposed by skilled lawyers. It sounds like you have both federal loans and private loans. If that is the case, then an attorney for the Department of Education or a loan guaranty company will represent the federal government and another lawyer will represent the private lenders.
The standard for discharging a student loan in bankruptcy is undue hardship, and most courts follow the so-called Brunner test. You will need to show 1) that you cannot pay your student loans and maintain a minimal standard of living, 2) that additional circumstances make it unlikely you will ever be able to pay your student loans, and 3) your have dealt with your student loans in good faith.
Good faith generally means that you made loan payments when you could or that you negotiated with your creditors in good faith, but the Ninth Circuit Bankruptcy Appellate Panel ruled that one debtor met the good faith test even though she had never made a single voluntary loan payment because she had lived frugally and had tried to maximize her income.
If you file an adversary complaint without a lawyer you need to have the mental stamina to see it through. Some people’s litigation over student loans have stretched out for years. Also, you should get all your evidence and paperwork together before you file your adversary proceeding and you should have a good argument in place as to why you meet the Brunner test. You also need to be prepared for discovery requests from the creditors’ lawyers.
I am not a practicing lawyer and can’t give you legal advice. And a person’s decision to try to discharge student loans in bankruptcy is a person decision that involves the assessment of a lot of unique factors.
But I do think the public sentiment about the student loan crisis is changing and there are some indications that the bankruptcy courts are beginning to see that many people simply cannot pay off their loans. I would be happy to talk with you about this by phone. I wish you the best of luck. Richard Fossey”
So Darcey, there you go. Finding the right attorney is a tough job for people. They will run into far more “can’t be done” than “I can do it.” There is no other solution than to keep calling bankruptcy attorneys who are licensed in your state and ask if they have had experience in discharging student loans through an Adversary Proceeding.
Here are a couple of articles that will help inform you in the process:
If you find a local bankruptcy attorney who is willing to tackle this, you can always ask them to contact me or Professor Fossey for help.
Alternatively, you might want to strongly consider setting up a consultation with my friend and debt coach, Damon Day. Damon and I discuss this topic very frequently and he can guide you through this process and has relationships with people who might be able to provide additional help.
Bottom line, for the right person who is willing to fight for relief there are options. People who are hoping most bankruptcy attorneys will tackle this, will be disappointed.
Note. This post was originally posted by Steve Rhodes. The original post can be found at: https://getoutofdebt.org/100868/bankruptcy-attorneys-contact-say-not-possible-discharge-student-loans
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994.