What is a summary judgment motion?

A summary judgment is a final decision by the court without having a trial. Debt collection lawsuits rarely go to trial and most are decided on a motion for summary judgment. The purpose of a trial is to resolve the facts that are disputed. In other words, the jury listens to all the witnesses’ testimony, reviews any exhibits, and decides whose story is more believable. When someone brings a summary judgment motion, they're arguing that all the important facts are undisputed, so there's no need for a jury to hear testimony and that the judge should just apply the law and make a decision. In debt collection cases, the creditor usually brings the summary judgment motion.

So what should you do if the debt collection lawyer brings a summary judgment motion in your case? First, you need to figure out if there are any facts that are disputed. If there are, the judge should deny the summary judgment motion and schedule the case for trial to resolve those disputed facts. If you come up with some, you'll need to put them in your response to the creditor's motion. In Minnesota, a response to a summary judgment motion must be filed with the court—and sent to the creditor's attorney—at least 14 days before the hearing. If you don't file a written response, you'll probably lose the case and the judge might not allow you to make any oral arguments at the hearing.

A summary judgment motion is probably the most difficult phase of a debt collection lawsuit for a non-lawyer to handle. You should strongly consider talking to a lawyer with experience defending debt collection lawsuits.

COVID-19 means a twelve-month break on mortgage payments for some borrowers

One of the most important provisions for consumers in the federal CARES act is the right to a twelve-month forbearance (a break) on mortgage payments for any borrower with a loan owned or insured by certain government entities. This can be a huge help to borrowers who are in financial difficulty right now, but also comes with some risks.

What loans qualify for the program?

The law applies to any loans owned by Fannie Mae and Freddie Mac, insured by HUD, the VA, or the USDA, or directly made by the USDA. According to the CFPB, nearly half of all U.S. home mortgages are owned or backed by Fannie Mae or Freddie Mac. Some borrowers can look up their loans at this link, to see if you qualify.

If your mortgage does not qualify for this program, your individual servicer may have its own forbearance program, just call to find out.

How do I get a break on my payments?

Typically you can call your servicer to request the forbearance. They have to offer it to all qualifying borrowers any obstacles, including no fees, charges or additional interest. The forbearance also may not result in any negative credit reporting. Note, the payments are not forgiven, they need to be repaid after the end of the forbearance through a few different payment options. You should ask your lender, before you take the forbearance, how missed payments will be handled.

How do I repay my mortgage payments once the forbearance is over?

This is one of the biggest unanswered questions about this program, and a potential real danger for people who participate in it. And many borrowers have not been able to get their lenders to commit to what will happen until the payments actually come due. There are a few different possible payback options:

• Lump-sum payback at the end of the forbearance: This is the scariest option for most borrowers—that they’ll be required to pay the missed payments back in full, all at one time. This is likely to be impossible for most people.

• Short-term mortgage modification: This option, first of all, assumes that the economy will be back to normal after 12 months, but also requires that borrowers stretch to pay the missed payments back over a few months to a couple of years. This option is likely to result in many foreclosures in the coming year.

• Long-term mortgage modification: Allowing borrowers to spread their missed mortgage payments out over the remaining term of the mortgage will help keep more people out of foreclosure. For example, for a borrower with a $1,500 mortgage payments and 20 years remaining on their mortgage, a one-year forbearance will increase their monthly payment by $75 per month for the remainder of the loan.

• Tacking payments onto the end of the mortgage: Another good option that will keep people out of foreclosure is to take the missed payments and add them to the end of the mortgage, extending the length of the mortgage loan up to 12 months. This options should help people get through the hard times without attaching a ticking time bomb to the end of the 12-month forbearance.

What if I need help when my mortgage forbearance is over?

There may be a couple of ways to get help if your mortgage company is asking for an unreasonable increase in your payments at the end of a forbearance. One would be to apply for a loan modification with the services. Another would be to file Chapter 13 bankruptcy, to spread the missed mortgage payments out over five years and allow you to pay it back a little at a time.

This is all new territory for everyone, so please let us know if you have any issues and we can help.

Bankruptcy discharge: private student loans can be wiped out in some cases

Many people are under the incorrect belief that student loans can’t be wiped out in bankruptcy. However, there are at least two ways to get rid of student loans in a bankruptcy case.

The first is to show the court that the loan would cause “undue hardship” and so based on that borrower’s specific situation, the loan should be wiped out. We discuss that in another article. The second is to prove that a particular loan does not meet the legal definition of “educational loan” under the Bankruptcy Code and therefore is just an ordinary loan that can be wiped out in bankruptcy.

There are two “exceptions to discharge” that may prevent student loans from being wiped out in bankruptcy.

1. An educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

2. Any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual

Governmental unit or nonprofit institution

This exception covers federal and state loans. It also covers loans “made under any program funded in whole or in part by a nonprofit institution.” This sentence in the bankruptcy law caused a whole bunch of student lenders to use nonprofits just for the purpose of funding/guaranteeing their loans. In the paperwork, you may see the name of a nonprofit like The Education Resources Institute (TERI). We believe that many of these loans were not meaningfully funded by nonprofits, but instead the lender “rented” the nonprofit’s name just to avoid the loans being dischargeable in bankruptcy. This is one factor we’ll look at if we represent you in your student loan bankruptcy case.

Qualified education loan

A qualified education loan is a very complex definition that requires looking at a handful of different federal laws, but basically the loan had to be made to an eligible student (half-time or more), at an accredited school, and the loan may not have been for more than the cost of attendance at the school, and solely for educational expenses.

How to make your case

Although the two definitions above make the majority of student loans non-dischargeable in bankruptcy, we believe that a lot of loans don’t meet either definition. You can make your case either by filing an “adversary proceeding” in your bankruptcy case, or by using these arguments as a defense to a student loan collection lawsuit after you have filed bankruptcy. We are one of the only law firms in Minnesota that handles student loan discharge cases, and our prices begin at $5,000. Get in touch if you have questions.

Bankruptcy discharge: student loans can be wiped out if there is "undue hardship"

Many people are under the incorrect belief that student loans can’t be wiped out in bankruptcy. However, there are at least two ways to get rid of student loans in a bankruptcy case.

The first is to show the court that a particular loan does not meet the legal definition of “educational loan” under the Bankruptcy Code. We discuss that in another article. The second one is to show that the loan would cause “undue hardship” and so based on that borrower’s specific situation, the loan should be wiped out.

In Minnesota, courts look at three factors to figure out whether a loan causes undue hardship.

1. The borrower’s past, present and reasonably reliable income and assets;

2. A calculation of the borrower’s reasonable necessary living expenses for their family; and

3. Any other relevant facts and circumstances.

This test is applied case-by-case and really depends on how well a borrower can paint the financial picture both that they can’t afford to pay their loans now, and also convince the court they will not be able to pay in the future. It’s helpful to be able to prove some kind of disability or condition that makes it harder to work or makes the stress of student loans too much to bear.

It’s much easier to wipe out private loans than federal loans using the bankruptcy process. Discharging student loans requires that you file bankruptcy first, and then file a separate case, called an adversary proceeding, against the student lender. Typical fees in a student loan discharge case are between $7,500 and $15,000, but they vary case-by-case.

We’re one of the only law firms in Minnesota who handle student loan discharge cases. Get in touch for a free consultation to figure out whether you’ll qualify.

What you need to know about student loan garnishment and tax refund offset

If you default on a federal student loan, the Department of Education has the power to garnish your wages and use your tax refund as an offset. These extremely unpleasant things all happen outside the court process and there is no statute of limitations. In fact, these collection powers are so powerful, that the Department rarely brings collection lawsuits against borrowers anymore. If you are dealing with student loan garnishment or offset, here’s what you need to know.

Wage Garnishment

The majority of federal student loan garnishments are done by the Department of Education itself. Under federal law, the Department may seize up to 15% of your disposable pay from each paycheck. This is typically the amount of your wages remaining after deducting taxes and health insurance.

The wage garnishment process happens administratively—they don’t have to sue you first and there is no court oversight of the process. They do, however, have to notify you in writing of their intent to garnish. This letter must list the nature and amount of the debt and give you a summary of your rights.

Borrowers have 15 days from the date that the intent to garnish notice was mailed to request a hearing. Borrowers can request a hearing after that date, but the garnishment will proceed while the hearing is still pending. Although borrowers have a right to an oral hearing, most hearings are conducted merely through the submission of the relevant paperwork. A decision must be issued within 60 days.

During the hearing, borrowers may object to the garnishment for a couple of reasons, including: (1) disputing the existence of the debt; (2) challenging the enforceability of the debt because it was based on forgery, or was discharged in bankruptcy or on statutory grounds; and (3) seeking to reduce the amount of the garnishment based on financial hardship. The borrower may also raise their eligibility for non-bankruptcy discharges, such as total and permanent disability or school closing during this process. There is a strict process to follow and forms that must be used to raise these issues and request a hearing.

Borrowers may also stop a garnishment by exercise their rights to rehabilitate or consolidate their defaulted loans. If all else fails, filing bankruptcy to stop the garnishment is an option.

Tax refund offset

The Department may also seize your tax refunds to offset the amount you owe on a defaulted federal student loan. They have to notify you in writing of their intent to seize your tax refund and provide you with a summary of your rights.

The defenses to a tax refund offset include: (1) disputing the existence of the debt; (2) challenging the enforceability of the debt because it was based on forgery, or was discharged in bankruptcy or on statutory grounds; and (3) the borrower is current on a repayment plan for the loan. In general, hardship is not a defense to a tax refund offset.

Borrowers may also prevent a tax refund offset by entering into an agreeable repayment arrangement or by exercising their rights to rehabilitate or consolidate their defaulted loans, though there are strict timelines that must be followed to prevent the tax refund seizure. As a practical matter, it is nearly impossible to get a tax refund back after it’s been seized.

Finally, filing bankruptcy will stop the tax refund offset.

How to deal with federal student loans

As total student loan debt in the United States approaches $1 trillion, many borrowers are going into default. On federal student loans alone, the number of people who went into default during the first three years after graduation was a staggering 13.4 percent. There are a few things borrowers can do to deal with runaway student loans.

If the federal student loan is not in default

If a federal student loan is not in default, there are numerous repayment options available, including a number of income-driven payment options. Each of these programs allow a borrower to pay a percentage of his income to his loans (sometimes as low as zero percent) and the remaining debt is forgiven after a number of years (20-25). The government has a web site that allows you to explore these options.

If the federal student loan is in default

Once default occurs, income-driven repayment plans aren't available anymore and the student lender will tack on a 25 percent collection fee to the balance. The lender can then garnish wages and seize tax returns. If a loan is in default, you have two options: rehabilitation or consolidation.

Rehabilitation

In our experience, rehab is the best option for most borrowers. To rehabilitate your federal loans, you must make nine consecutive reasonable and affordable payments. The payment amounts are determined by your disposable income and can be as low as $5 per month. To start the rehab process, contact your loan servicer and request info on rehab. The servicer is required by law to give you this information. You will likely have to submit some form of income verification.

Once you’ve made the required payments, your loan will be taken out of default status and income-based repayment options are available again. The default status will be removed from your credit report, although past late payments can still be reported.

You can begin the rehab process even if your wages are being garnished or tax refunds are being seized, though the garnishment or seizure probably won’t stop until you’ve made all the rehab payments.

It’s also important to understand that you can only rehab a defaulted loan one time. So it’s critical to transition to an income-driven repayment option once you’ve completed the rehab so you don’t default again.

Consolidation

Consolidation is the process of paying off your defaulted federal student loans with a new loan. Consolidation may be an attractive option for a person who can’t wait nine months to get out of default. Typically, this is someone who wants to go back to school right away and needs immediate access to additional federal student aid that isn’t available when loans are in default. Most, but not all, federal loans are eligible for consolidation.

Before you can consolidate your loans you must either: (1) make three consecutive fully monthly payments; or (2) agree to pay off the new consolidated loan through an income-driven repayment plan.

You can begin the consolidation process by requesting info from your servicer or apply for a consolidation loan directly through the federal government. Consolidation isn’t available if your wages are being garnished, unless you can get the garnishment order lifted.

After consolidation, past late payments and past default status will remain on your credit report.

Finally, consolidation is generally only available one time—you typically cannot consolidate a loan that has already been consolidated.

Discharging federal student loans outside bankruptcy

A federal loan can be administratively discharged by the U.S. Government for a few reasons. These include things like the borrower becomes totally disabled or the school closes while the borrower is attending. More information about these options is available on the federal student loan website.

Discharging federal student loans in bankruptcy

Contrary to popular belief, student loans can be discharged in bankruptcy, but it's not always easy. A student loan can be discharged if paying it would cause "undue hardship" to the borrower. It's not totally clear what this means, since different courts have interpreted this in different ways, but it's definitely something more than just not being able to afford to pay off loan on a borrower's current income. A borrower generally has to show that she will never be able to pay off the loan to have it wiped out in bankruptcy.

Payment plans in Chapter 13 bankruptcy

One last option for borrowers struggling to pay private loans is Chapter 13 bankruptcy. In Chapter 13, a borrower can force the lender to enter a repayment plan over a five-year period.  This can be necessary where a borrower is being sued and the lender is demanding the full amount to be paid at once "or else." The downside to this approach is that if the court-ordered payments are low enough, interest will accumulate faster than it's paid off and the borrower will owe more at the end of the five years.

How to deal with private student loans

Unlike federal student loans, borrowers have few good options for dealing with unmanageable private student loan payments. If your private loan has gone into default, here’s what you need to know.

your options for defaulted private loans

You basically have three options for dealing with a private student loan in default: (1) negotiate a settlement or payment plan with the debt collector; (2) wait to be sued and defend yourself in court; (3) try to wipe out the private loans in bankruptcy.

Negotiation

Private student loan borrowers do not have the protection of federal income-based repayment options. You’ll have to work with the debt collector and try to agree on a reasonable settlement or payment plan you can afford.

Defend yourself in court

If the debt collector won’t be reasonable about settlement, another option is to wait to be sued and defend yourself in court. There are a variety of defenses available in a private student loan lawsuit. While the best case scenario would be getting the case thrown out, in most cases pushing back in court will soften the collector’s bargaining position and get you a more reasonable settlement.

Discharge in bankruptcy

It is difficult, but not impossible, to wipe out private student loans in bankruptcy. You should consult with a bankruptcy lawyer experienced in dealing with student loan issues to see if discharge might be a viable option for you.

Your rights when dealing with private loan debt collectors

Knowledge is power and you should educate yourself on your rights when dealing with private student loan debt collectors. The Fair Debt Collection Practices Act forbids collectors from using misleading, abusive, or harassing collection tactics. You can sue a debt collector who breaks the law even if you owe the debt and there are many benefits to holding a debt collector accountable.

Common FDCPA violations in student loan collections include misleading threats about garnishment and lying to you about wiping out your student loans in bankruptcy.

How to defend a private student loan lawsuit

Procedurally, there aren’t any differences between a private student loan lawsuit and any other debt collection lawsuit. The lawsuit begins with the service of a summons and complaint. Even if the summons doesn’t have a court file number, you must still answer it within 20 days. Your answer must respond to all of the allegations in the complaint and should identify your defenses.

The defenses in a collection lawsuit, however, are somewhat different than those typically asserted in, say, a credit card collection lawsuit. Here is a list of some of the more common defenses in a private student loan lawsuit.

statute of limitations

The statute of limitations in a private student loan lawsuit in Minnesota is generally six years from the date you defaulted on the student loan. Be careful, though, because this analysis can be complex. You need to look at the default triggers in your loan agreement and think carefully about when you first went into default. Depending on your agreement, it may not have been when you first missed a payment. Next, you need to figure out whether Minnesota’s six year statute of limitations period is applicable, or whether another state’s shorter statute of limitations period applies. Then you need to calculate the time between your default and the end of the applicable time limit to determine whether the lawsuit was started in time.

If you can show that your lawsuit was beyond the statute of limitations, a Court should throw it out.

illegal interest rate

Watch out, this one is tricky too. Most states limit how high an interest rate can be charged for certain loans. But there is also a federal law, the National Bank Act, that may allow some lenders to avoid state law interest rate caps. To figure out whether the interest rate on your loan is too high involves a complicated analysis of who your lender is, where they are located, and what interest rate law applies. This is even more difficult because many student loans have variable interest rates that change over time.

If you can show that the interest rate charged was illegal, you should be able to reduce the amount owed. In some cases, you may be able to eliminate the student loan debt entirely.

discharge in bankruptcy

If you filed bankruptcy after taking out the student loans, you may be able to show that the loans were wiped out in your bankruptcy. This, too, is a complicated analysis that involves looking at who made your loan, where you went to school, what you went to school for, whether you used the student loan proceeds for anything other than education, and a bunch of other factors.

But if you can show that your loan was not the type that is automatically discharged in your bankruptcy, you might be able to get a court to throw out the lawsuit.

insufficient evidence

Many private student loans are being acquired by debt buyers. Because they didn’t originate the loan, debt buyers may not have sufficient evidence to prove that they own the debt or the amount owed.

Contract formation issues

If you never agreed to the loan and signed the paperwork, the loan contract shouldn’t be binding. We’ve seen several cases where the primary borrower forged a co-signor’s signature, so if you don’t recognize a loan, you should ask some questions before you concede owing it.

Differences between federal and private student loans

Probably the first step in figuring out your options for dealing with student loans is to determine whether your loans are federal loans or private loans. Here are the key features of each:

FEDERAL STUDENT LOANS

Federal student loans are made or guaranteed by the Department of Education. The most common federal student loan types are Stafford, Direct Loan, PLUS, and Perkins loans. Borrowers can use the National Student Loan Data System to figure out what type of federal loans they have.

Federal student loans generally have lower interest rates and the law gives borrowers many more options for dealing with them if the payments become too burdensome. However, there are very few defenses available if the government begins legal action after default.

Federal student loans are difficult, though not impossible, to wipe out in bankruptcy.

PRIVATE STUDENT LOANS

Private student loans are typically made by banks, credit unions, state agencies, or schools themselves. They may have names like “alternative” or “institutional” loans.

Private student loans typically have higher interest rates than federal loans and the borrower’s credit history will often determine the precise terms. And unlike federal loans, borrowers have very few options if they fall behind on payments. On the bright side, borrowers may have more defenses available if a private student loan lender begins legal proceedings.

Although still challenging to discharge in bankruptcy, private student loans may be a little easier to wipe out than federal loans.

How to know if your student loan is in "default"

A federal student loan is in default if you have gone more than 270 days (9 months) without making a required payment. Once a federal loan is in default, a 25% collection fee will be added to the balance and the government may seek to garnish your wages or seize your federal tax refund.

Private student loan default is governed by the loan agreement and may begin after just one missed payment. Private loan contracts also typically provide for default if the borrower: (1) breaks any promise in the loan agreement; (2) files bankruptcy; or (3) makes a false statement in the loan application.

Once a private loan is in default, the loan may be referred to a debt collector or the borrower may get sued by a collection law firm.

Common FDCPA violations in student loan collections

The total amount of federal student loan debt in the U.S. is about one trillion dollars. When a borrower falls behind on payments, the student loan collections process begins. Although federal student loan collectors have impressive collection powers, it's important for consumers to recognize that the Fair Debt Collection Practices Act still prevents a debt collector from making false or misleading statements or otherwise harassing or abusing a consumer. Here are some of the most frequent FDCPA violations in student loan collections:

Misleading threats to garnish wages

Debt collectors often mislead or lie to consumers about the imminence of a wage garnishment if the consumer doesn't pay immediately. A federal student loan collector may institute an administrative wage garnishment against a consumer who is delinquent. No judgment is required. But there are important steps that a collector must follow before starting an administrative wage garnishment. They must send the consumer a notice--at least 30 days before starting the garnishment--that advises the consumer of their right to inspect the records related to the debt, their right to a written repayment agreement, and their right to a hearing. The consumer then has 15 days to request a hearing. And a private student loan collector doesn't have the ability to do an administrative wage garnishment. They have to sue the consumer and get a court judgment first. So, a collector can't just start a wage garnishment immediately if the consumer doesn't pay and any threats to the contrary probably violate the FDCPA.

Lies about how to get a federal student loan out of default

Debt collectors often lie to or mislead consumers about the ability to get a loan out of student loan collections. A federal student loan is considered to be in "default" if the borrower goes 270 days without making a payment. Once the loan is in default, a 25% collection fee may be tacked on. But a borrower can get a federal student loan out of default by "rehabilitating" the loan. This means making nine voluntary, reasonable, and affordable monthly payments within 20 days of the due date during ten consecutive months. A borrower may also be able to get the loans out of default by consolidating into a single loan. Debt collectors often tell consumers that there's nothing they can do to get the loan out of default, or don't tell them about all of their options, which may violate the FDCPA.

Telling consumers that they can't discharge student loans in bankruptcy

Student loan collectors often tell consumers that student loans can't be discharged in bankruptcy. While this is often true, it isn't always true. A borrower may be able to get a student loan discharged if they can prove undue hardship. The burden of proving undue hardship is very difficult, but it can, and has, been done. A debt collector that tells you that student loans can never be eliminated in bankruptcy isn't telling the truth and is likely violating the FDCPA.

Illegal contacts with third parties

Under the FDCPA, a student loan collector (or any collector) can't communicate with your family members, co-workers, friends, or other third parties. Even threats to do so probably violate the FDCPA.

The bottom line

If a student loan collector chooses to give a consumer legal advice, they better get it right. Making false statements about the law or a consumer's options probably violates the FDCPA.

How chapter 7 bankruptcy works

The word “bankruptcy” may conjure images in your mind of auctioneers selling all your property except the clothes on your back. The reality is that Chapter 7 bankruptcy isn’t anything like that. The three most common reasons that people file bankruptcy are divorce, job loss, and medical bills. It’s very likely that you have friends, family or co-workers who have gone through bankruptcy and that you never heard a word about it.

So how does Chapter 7 bankruptcy work? We offer a 30-minute free phone consultation where we can review your options with you. We collect information about your income, expenses, debt and assets. After this initial evaluation we help you figure out whether you qualify for Chapter 7 (this will depend on income, family size, etc. though most folks who come see us do qualify).  Next, we discuss whether the debts can be wiped out in bankruptcy. Taxes can be dischargeable sometimes, same with student loans. Alimony/child support are dischargeable. Credit cards, personal loans, utility bills and medical bills can be wiped out.

If the client qualifies for Chapter 7, we discuss the ramifications of bankruptcy. It may be more difficult to get a mortgage for the next few years and any car loan you take out will likely be at a higher interest rate than someone who hadn’t filed might qualify for, but in general, you can overcome these disadvantages by building credit after bankruptcy. Job seekers and people who might be looking to rent an apartment should know that only a very small percentage of employers and landlords will run credit checks.

Next, the conversation turns to assets. People want to know what property they can keep in a bankruptcy. The short answer is that you would only have to surrender property which is not “exempt.” The bankruptcy code is full of exemptions. Your clothes, furniture, household goods are safe unless you’re a Kardashian or something. You can generally keep your house and car, though some people use bankruptcy to get rid of underwater houses or cars.

The Process

If a client decides to file, we get started putting together all the required paperwork and filling out schedules. Then we file the case with the court. This filing begins what is called the “automatic stay.” During the automatic stay no creditors can contact you, either by telephone or by mail. If they do, we may be able to sue them and collect money damages.

Approximately one month after filing, you’ll meet with a bankruptcy trustee. This is called a 341 meeting. It’s the trustee’s job to make sure you aren’t hiding assets anywhere. It usually takes less than five minutes.

About sixty days after the 341 hearing, if all goes well, the bankruptcy is confirmed and all your dischargeable debts are eliminated. This means that the creditors can never attempt to collect the debts again, and you get a fresh start.

"As is" isn't a free pass to rip you off

We get a lot of calls from people who have been fraudulently sold cars with serious defects. When the buyer confronted the dealer about the problem and demanded her money back, the dealer insisted that the car was sold "as is," and so it's "not my problem." But the dealers don't understand the law--there are several reasons why a buyer has legal claims even when the car is sold as is. Let’s break down a few of them here:

• The car was sold with a warranty or a service contract. Under federal law, a dealer can't disclaim "implied warranties" in a sale if it provided a warranty or a service contract.

• The dealer lied about the vehicle’s condition. Under Minnesota law, a dealer can't sell a vehicle as-is if it makes a false statement about a serious defect.

• A dealer can't get off the hook for specific statements it made about the car. A dealer’s verbal statements about the car, called express warranties, can never be disclaimed. This means that if the dealer said "the car has never been in an accident," or or "the check engine light is only on because the car needs a new oxygen sensor" when it actually needs a new engine, it can't squirm out of those untrue statements by hiding behind "as is."

There is a lot of nuance to these scenarios and a detailed legal analysis is required before it’s clear whether you’ll be able to defeat “as-is” in your case. But it’s important for buyers to know that just because their car was sold “as-is” doesn’t mean that they’re out of luck.

Sold a vehicle “as-is” and wondering if you can do anything?
Click to learn the types of cases we handle.

Can I wipe out tax debt in bankruptcy?

This post describes how to deal with tax debt in bankruptcy.  Tax debt is one of the hardest kinds of debt to shake. First of all, the IRS knows where you are. Also, they have special enforcement powers to collect their debt. They can put a lien on your house or your property without suing you. They can take money in your bank account without a judgment. They can seize tax refunds. They can take you social security. And they can also garnish your wages, often for a lot of money. But contrary to popular belief, tax debt can be wiped out in bankruptcy , especially if it's old. Here's how it works.

1. The rules: For income tax debt to be wiped out in bankruptcy, the following three rules must apply:

Rule 1: The income tax return must have been due more than three years ago. The first question we ask to figure out income tax dischargeability is whether the tax return was due more than three years before the date of bankruptcy filing. 2008 income taxes were due on April 15, 2009. Today is February 8, 2012. These taxes are not dischargeable today, but they pass this test if we wait until April 16 to file. But there's one wrinkle. If you filed for a six-month extension that year, your tax return wasn't due until October 15, 2009. So if you're looking to discharge income taxes, we can't file your bankruptcy case until October 16, 2012.

Rule 2: The income tax return must have been filed more than two years ago. This one seems easy. If the return was filed more than two years before today, this test is satisfied. In some cases, the taxpayer never actually files a return, and so the tax agency files one for them (sometimes called a "substitute return."). When that happens, the two-year clock never starts running, and until the taxpayer actually files his/her own return, this test can never be met.

Rule 3: The tax must have been assessed more than 240 days ago. This means that the tax agency's determination that you owe a debt must have been made more than 240 days ago. The "determination" can be a few different things--wither you filed your return and acknowledged you owe a balance. That's an assessment. Or the IRS changed your return to say that you owed a balance. That's an assessment too. Finally, if you were audited, and the IRS added a balance based on the results of the audit, that's an assessment too. This part of the test is the most confusing, and you might want to see a tax professional (tax accountant or attorney) to figure out the assessment date.

2. Other factors add time to the clock. If you've filed bankruptcy before, the amount of time your case was open, plus six months, are added to all the time limits above. Also, filing an Offer in Compromise with the tax agency can stop the clock.

3. Some kinds of taxes are never dischargeable. Income taxes can be discharged if they meet all the above tests. There are other kinds of debts, such as sales taxes or payroll taxes collected on behalf of an employee, that will never be dischargeable. See a tax attorney if you're facing these types of debts.

4. If a tax debt can't be discharged, you still may be able to stop collection by filing Chapter 13. Chapter 13 bankruptcy stops all collection efforts by a tax agency, and allows you to spread the tax debt over a three to five-year period. This can be a big relief when the tax agency is looking to put liens on your property or garnish your wages, sometimes up to 90 percent of your income.

How does Chapter 13 work?

How does Chapter 13 work? Clients are asking us about Chapter 13 Bankruptcy, and while it has some similarities to Chapter 7, it's also way different. Chapter 7 fits best where you can't pay your debts and don't have many valuable possessions, but Chapter 13 makes sense if you have substantially more income (you can pay a portion of what you owe over time) and/or you own property that is not covered by the bankruptcy exemptions.

Chapter 13 can stop foreclosure

We often use Chapter 13 to stop foreclosure. Chapter 13 can allow a homeowner to catch up on missed mortgage payments, pay tax debts over time, or to wipe out an underwater second mortgage.

How Chapter 13 works

We figure out your disposable income, which basically means your take-home pay minus your actual living expenses.

How much do I have to pay to creditors? Once we know your disposable income, that may be close to what your "plan payment" will be. Your plan payment is the amount of money you will pay to your creditors over a three-to-five-year period. In general, your plan payment goes to pay off your secured debt (like a car loan) in full, as well as your priority debt (overdue taxes, government penalties, etc.) A portion of your general unsecured debt (credit cards, medical bills, legal judgments) is paid out of the rest of your plan payment, but that doesn't have to be paid in full, and lots of times, can be paid at pennies on the dollar..

How do I make my plan payments? You make plan payments directly to the Bankruptcy Trustee, who tacks on an additional fee (in Minnesota, the fee is about 7 percent of your payment) and spreads each payment out to your creditors. You need to have steady enough income to stick to payments, because if you miss them your case will almost certainly be dismissed.

How much does Chapter 13 cost? The filing fee is currently $310, which is 25 bucks less than the Chapter 7 filing fee. The total attorney's fee for Chapter 13 is usually more than Chapter 7, but most times you end up paying the same or even less, since we have the ability to take some of our fees from the plan payments, meaning that it comes out of your creditors' pockets, not yours.

How do we know which chapter you should file? There are a few common scenarios where you might choose a Chapter 13 bankruptcy.

• Your net income is too high for Chapter 7 (you don't pass the means test)

• You own a home but you're behind on your mortgage or facing foreclosure

• You're way underwater on a second mortgage

• You are behind on your debt payments, but you can catch up if you just had more time

• You have valuable property which is not exempt, but you can afford to pay your creditors over time

How do I stop foreclosure?

The most common problem people come to see about is foreclosure. Knowing you might lose your home in foreclosure is scary, but there are a lot of ways we can help you get back into good standing on your mortgage so we can keep you in your house. In this post I run down some of the options out there:

1. Try for a loan modification. In our opinion, most of the loan mod programs out there are nearly worthless. HAMP can be a good fix for a homeowner behind on payments, since it reduces monthly payments AND puts your loan back into good standing. But since there's no way to force lenders to comply with HAMP, most people are left out in the cold (and pushed into foreclosure). It's been very rare to see a homeowner get a HAMP modification, but that doesn't mean you shouldn't try it, hoping to catch the right person on the right day and catch a lucky break.

As for the lenders' "internal" modification programs, your guess is as good as ours whether you'll qualify.  Since the criteria and terms of these mod programs are usually secret, you're at the lender's mercy. So if you go this route, negotiate and negotiate hard. Even though the customer service rep on the phone might not realize it, the bank is probably going to lose a lot of money if they foreclose on you. Show them why. It might be helpful to order an appraisal--if the lender knew your house was $100,000 underwater, they might not think it's such a good idea to kick you out of it.

2. Don't hire loan modification sleazeballs. If foreclosure is the number one problem we see in our office, 1A is people who have paid sleazy loan modification outfits to help them stay out of foreclosure. These programs are expensive, and most of the time they just don't work. In particular, stay away from: 1) out-of-state companies (it's harder to get your money back), 2) companies that tell you to stop making your mortgage payments; and 3) for-profits that ask for a large up-front fee without telling you what they can do for you or how they can do it. So many people get caught up in these scams, and it only creates a bigger mess to clean up once the scammer runs away with the money and leaves you right where you started or worse.

3. Consider Chapter 13 reorganization. Chapter 13 is a way to force a lender to accept repayment of your arrears over time. It's ideal for the person who missed a bunch of payments, but now has the income not only to make the payments, but also to catch up and stop foreclosure. Chapter 13 allows you to pay your mortgage arrears in equal installments over a three- to five-year period. It can be surprising when a lender refuses to let you catch up on your mortgage, even when it knows you have the income for it. This way you can call the shots and force them to accept your money.

4. Strip off your second mortgage. If you didn't have to pay your second mortgage, could you afford to catch up on your mortgage? As of earlier this year, in a Chapter 13 reorganization we can strip second mortgages (and third mortgages, and fourth...) where the value of the house is less than the balance of the first mortgage. It's called lien stripping. To do this, we need an appraisal to prove the value of your home. Once we can prove that your second mortgage is fully unsecured, we can strip the lien in Chapter 13.

5. More people have just been moving on. If you can't afford your mortgage payment, can't qualify for a modification, and bankruptcy won't help your situation, it's time to make some hard choices. If you have an underwater house, meaning you have no equity, what do you really own? And if you have to pay $10,000 just to get back into good standing, is it really worth it? If you decide to abandon a home to foreclosure, you can usually live in the house mortgage-free for at least six months while the foreclosure runs its course. For many of our clients, this is just enough time to save up some money to make the transition to a new place to live comfortably. And if you have a second mortgage that won't go away in the bankruptcy, well we can usually wipe that out in Chapter 7.

How taxes can be wiped out in Chapter 13

Many of our Chapter 13 clients are struggling with tax debt. Tax debt can be tricky in Chapter 13 bankruptcy, but here are a few advantages and disadvantages you'll want to know about if you have significant tax debt.

• Get your tax transcripts. To diagnose and fix your tax problems, you'll need to get account transcripts from the IRS for each year you owe a balance. These documents are a history of when your tax was due, when the return was filed, and when each charge was added to your account. You'll can get account transcripts on the IRS web site. If you have trouble getting these before you make your appointment, we can get transcripts for you if you give us power of attorney and pay a transcript fee.

• Priority claims must be paid in full. A priority tax claim is an income tax debt that is recent (generally speaking, less than three years old, but the actual calculation is complex and you should speak to an attorney). For the most part, these are the same tax debts that can't be discharged in bankruptcy (with some exceptions), and so you'll want them to be paid off by your bankruptcy. In Chapter 13, a priority tax debt must be paid in full over the life of your Chapter 13 plan (three to five years). So if you owe $10,000 in priority tax debt, you can generally pay that debt in Chapter 13 in roughly $200 a month payments.

• The benefit of priority tax claims in bankruptcy is that they must be paid before non-priority debt, like credit cards or medical bills. So if your disposable income is $250 a month and you owe $10,000 in priority tax debt, the first $200 of each payment will go to taxes, which need to be paid anyway, and only $50 will go to credit cards. The higher your priority debt, the less you'll pay in non-priority debt and the more you can discharge at the end of your bankruptcy case. One thing to remember is that even if you pay priority tax debt in your Chapter 13, you may have to pay some accrued interest (currently four percent) after your plan is over.

• Tax liens must be paid off, but can be modified. If you have a tax lien filed against you, this can present some new problems. Tax debts with liens on them are classified as "secured debts" in bankruptcy. This means that, like priority debts, they need to be paid in full over the life of your plan. What makes secured debts tricky is that the IRS can classify a tax debt as secured even when that debt would otherwise be dischargeable in bankruptcy. This means that by getting a lien, the IRS is preventing you from discharging certain debts in a Chapter 13 case. The good news about tax liens is that they can be "crammed down" in bankruptcy. To determine the secured claim created by a tax lien, you count up all the assets you have. Your secured claim is the lesser of the dollar amount of the lien, or the value of all your property put together. Contact a bankruptcy attorney if you have tax liens, because there are sometimes other creative things we can do to save you money.

• Some tax debts are neither priority nor secured, and these can be discharged in Chapter 13. Some older tax debts can be discharged in Chapter 13. This means that sometimes, when you come to see an attorney about your tax debts, we may advise that you wait to file, in order to age out certain debts and make them dischargeable. If they're dischargeable, this means they get thrown into the pot with all your credit cards, medical debts and personal loans, and they're paid out of your disposable income. Whatever can't be paid out of disposable income after all the other higher-priority debts are paid, are wiped out at the end of a successful Chapter 13.

The Bankruptcy Means Test: Is it going to stop me from filing Chapter 7?

The means test is one of the bankruptcy mysteries our clients ask about most often. The means test was created by the 2005 bankruptcy amendments, and was meant to make it harder for high-income folks to file bankruptcy.

To decide whether clients qualify to discharge their debts in Chapter 7, the courts are concerned with two major questions: 1) Does a consumer have enough assets to pay off their debt? and 2) Does a consumer have enough income to pay off their debt? The means test helps the court answer the second question.

Your attorney will compile the last six months of all income your household has received, and compare it against the median household income of a family your size in your state—for example, as of this post, the median household size for a family of two in Minnesota was $72,734. This information is available on some handy tables on the U.S. Trustee's web site. If your household income is less than the median, congratulations—you've finished the form and you can file Chapter 7!

If your household income is more than the median, you may still be able to file Chapter 7, but there are a whole set of other calculations that your attorney will need to go through involving your monthly expenses to find out. These include some standard expenses that can be found on the U.S. Trustee's web site, as well as some actual monthly expenses. Once you deduct these expenses from monthly income, the goal is generally to have a very low number for your leftover—or disposable—income.

But filling out the means test form requires a whole lot more than just looking up some numbers and plugging them into a chart. First of all, some of the deductions are backward-looking over the past six months. Some are forward-looking. And some are hypothetical (an expense is allowed if you should be spending on it). Also, many of the expenses have rules--you can't take the expense unless certain criteria are met. These rules are based on the Bankruptcy Code and court cases interpreting the bankruptcy law. This is why you'll need a good attorney who knows the ins and outs of bankruptcy, not just someone who will fill out your bankruptcy forms without much legal analysis.

Some cases are exempt from the Means Test, for example, cases where most of the debt is business debt rather than consumer debt, or where the debtor is a disabled veteran or military reservist/guardsman.

These are just the basics. In other articles, we've gone more in-depth so you can understand more about the means test and how you can qualify for Chapter 7 bankruptcy.

Who is National Collegiate Student Loan Trust?

Over the last few years, National Collegiate Student Loan Trust has brought hundreds of debt collection lawsuits against Minnesota citizens. If you've been sued by National Collegiate Student Loan Trust, here's what you need to know.

Who is National Collegiate Student Loan Trust?

NCSLT doesn't lend money. It's merely a series of trusts that contain a pool of hundreds of private student loans. The loans have been packaged together and sold as investment vehicles. If this sounds similar to the way mortgages are handled, it should.

There are several National Collegiate Student Loan Trusts. They are typically named with the year the loan was originated. For example, most of the cases I'm seeing lately involve National Collegiate Student Loan Trust 2007.  I've also seen loans held by National Collegiate Student Loan Trust 2005 and 2006.

How do the student loans get into these trusts?

First, a bank issues a student loan to help someone pay for college. The bank then sells the loan to an entity called National Collegiate Student Loan Funding. This entity is merely a holding company that deposits all of the student loans into the individual trusts. Once the loans are packaged into trusts, bonds are sold to investors. The investors receive money based on the amount of money collected from student loan borrowers.

The trusts themselves don't actually service the loans and collect the payments. They hire someone, called a servicer, to do that for them. In most of the cases I've seen, the servicer is U.S. Bank.

Another interesting element of these trusts is that the loans are partially guaranteed. This means that the investors basically have an insurance policy when student loan borrowers aren't able to make payments. If the borrower defaults, the guarantor steps in and covers the payment.

What should I do if I'm sued by National Collegiate Student Loan Trust?

In my experience, it's difficult to negotiate a reasonable payment plan with National Collegiate Student Loan Trust. They demand that the borrower hand over a bunch of sensitive financial documents, such as tax returns and pay stubs before they'll even consider a settlement offer. And the offers that they make are rarely affordable. To avoid this frustrating experience, I've been advising people to fight back against the lawsuit by answering it and challenging NCSLT's proof in court.

National Collegiate Student Loan Trust can usually prove that they acquired a pool of loans from the originating bank. But, in my experience, they rarely have sufficient proof that they own your loan. There are other ways to challenge the sufficiency of their evidence and, depending on the specific facts involved, you may have other defenses as well. We've been successful getting NCSLT cases thrown out of court and have negotiated very favorable payment plans by pushing back.

How car dealers fraudulently manipulate the interest rate of a loan

Another type of auto fraud related to the vehicle's financing is when the dealer incorrectly discloses the financial terms of the loan. This dishonest practice is designed to dupe the buyer into thinking that the loan is more favorable than it really is.

Under the Truth in Lending Act, the dealer must accurately disclose the amount financed, the finance charge, and the annual percentage rate. Federal law requires that these terms be disclosed in the so-called Truth in Lending box (pictured above). The main point of the Act is to require transparent and consistent disclosure of finance terms so that buyers can easily compare multiple loans and decide which one is best.

Here's what the key terms mean:

Amount Financed. This is the total amount of money you are borrowing from the lender.

Finance Charge. These are all of the charges imposed as a result of the extension of credit. This obviously includes interest, but should also include any other charge that a buyer would not have to pay if it was a cash transaction.

What a shady dealer might do is to manipulate these disclosures to distort the true cost of the credit. The most common way a dealer does this is add a finance-related charge to the "Amount Financed" total rather than the "Finance Charge" total. This little trick will make the interest rate look lower than it really is.

Here's an example. Let's say you're buying a used car for $10,000. The annual interest rate is 10% and you will pay it off over 5 years (60 months). So the $10,000 would go in the Amount Financed box because it's the amount you're borrowing. And the interest amount ($2,621.25) would go in the Finance Charge box.

Because you're financing the transaction, the dealer requires that a GPS unit be installed so that it can locate the vehicle for a repossession if you fall behind on payments. The dealer charges you $500 for the GPS unit. Because the dealer allows you to roll this $500 charge into your loan, it goes in Amount Financed box right? Wrong. The GPS fee should be a Finance Charge because the dealer only requires these GPS units for buyers that finance. It doesn't require them for cash buyers. By fraudulently putting the GPS fee into the Amount Financed box, the dealer keeps the APR at 10%. But if the GPS fee was put in the Finance Charge box where it belongs, the APR jumps to 12.33%. You can verify my math if you like by using this online APR calculator.

The takeaway? Make sure you carefully review the terms of your loan to make sure the dealer isn't trying to scam you. Review every charge and ask yourself would the dealer charge this in a cash transaction? If the answer is no, then it should be a finance charge and disclosed accordingly. If the dealer improperly discloses the financial terms or misstates the interest rate, it likely has violated the Truth in Lending Act. This would give rise to claims for statutory damages, actual damages, and the dealer would have to pay your attorney fees and court costs.