Celebrating 10 years! 2007-2017

New Fed chair wonders why student debt can’t be discharged in bankruptcy

https://www.marketwatch.com/story/n ew-fed-chair-wonders-why- jdslug03/01/18
I am really hoping this gets steam. The SLD crisis in this C cocolawyer03/01/18
Don’t get excited. The Fed doesn’t make law. It has in qdllc03/01/18
At this point in my life, I don't have a dog in this fight. finklebots03/01/18
Because of the Tax bomb at the end. cocolawyer03/01/18
That's what, like 10+ years off at least? My bet is that the finklebots03/01/18
The Bankruptcy trustee is probably going to be far more vici khazaddum03/01/18
Just keep borrowing and borrowing until you have such a larg fettywap03/01/18
At this point, even if bankruptcy laws were changed, I would bazinga03/01/18
You don’t file BK until served a summons on these facts. khazaddum03/01/18
Isn't your credit just trashed with $150,000 in debts outsta fettywap03/02/18
If you are IBR and current on payments it doesn’t matter f khazaddum03/02/18
Defaulted in 2009, so the 150,000 in outstanding, defaulted bazinga03/02/18
That's pretty amazing they didn't file suit to at least get bucwild03/02/18
I graduated from law school in 2006. Probably started payin bazinga03/02/18
Good for you. I wonder if the 2008 financial crisis had anyt bucwild03/02/18
Yup. The defaulted debt fell off my credit report in 2016. bazinga03/02/18
I highly doubt there will be a tax bomb on IBR. There is no david6198303/02/18
((())) triplesix03/02/18
Being taxpayer money, and particularly with the IBR option, onehell03/02/18
jdslug (Mar 1, 2018 - 2:40 pm)

https://www.marketwatch.com/story/new-fed-chair-wonders-why-student-debt-cant-be-discharged-in-bankruptcy-2018-03-01?siteid=yhoof2&yptr=yahoo

YAY!!!

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cocolawyer (Mar 1, 2018 - 2:57 pm)

I am really hoping this gets steam. The SLD crisis in this Country is horrific.

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qdllc (Mar 1, 2018 - 3:12 pm)

Don’t get excited. The Fed doesn’t make law. It has influence, but the down side is what might get lost in the process.

For example, either CH7 or CH13 could pretty much ruin any life savings you’ve acquired. For people planning based on the current scheme, bankruptcy won’t be a help because they might not have time to rebuild after discharge.

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finklebots (Mar 1, 2018 - 3:19 pm)

At this point in my life, I don't have a dog in this fight. As long as you don't have private loans, just go on IBR and think of it as paying a higher tax rate. As long as you're able to federally fund your education and IBR the debt, why do you need bankruptcy?

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cocolawyer (Mar 1, 2018 - 3:21 pm)

Because of the Tax bomb at the end.

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finklebots (Mar 1, 2018 - 3:24 pm)

That's what, like 10+ years off at least? My bet is that they'll work something out when the time comes.

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khazaddum (Mar 1, 2018 - 3:27 pm)

The Bankruptcy trustee is probably going to be far more vicious than The Bomb—the bomb has never gone off yet, icey Trustees have been around forever.

With your income, property, assets, and solo ambitions... a BK would be awful. Having a BK Trustee rustling with the trust account? It happens a lot with the solos in BK we work. Most of them close shop forever thereafter.

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fettywap (Mar 1, 2018 - 3:25 pm)

Just keep borrowing and borrowing until you have such a large amount owed that you won't have to pay taxes. Pretty sure I will be there.
What sucks is I was 9 years out of law school before Dept of Ed made income based repayment available. So I will be in repayment 35 years on my student loans.

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bazinga (Mar 1, 2018 - 8:39 pm)

At this point, even if bankruptcy laws were changed, I wouldn't bother to declare to get rid of my private student loans. I defaulted on $150,000 of private student loan debt in 2009. Haven't paid a penny since default. Statute of limitations has been running and the suit is now time barred in my state of residence, which is also the state of default. Student loans with one penny of government backing are exempt from the SOL, but private student loans with no government money are still subject to the same SOL as any other breach of contract. My state's SOL for breach of contract is 5 years. Even if I move to another state, the state will use its borrowing statute to find that the SOL in my state has run.

So I'm not too worried about ever having to pay these loans back. I do worry about the implications that I can basically never be admitted to another state bar due to the supposed ethical quandary of using a technicality to get out of my debts. Even though everything is perfectly legal and above board, I don't think C&F Boomers would understand.

And of course the SOL is an affirmative defense, meaning that I can't raise it until I actually get sued. I would definitely prefer not to be sued, because even though I can win on this affirmative defense, I still will have to go through the process of being sued, and may have to disclose that on future applications for whatever. In that sense, a changed bankruptcy system would be tempting, but I still probably wouldn't want to ruin my credit for 10 years, especially since my public loans are going to be PSLF'd away in 5.

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khazaddum (Mar 1, 2018 - 8:40 pm)

You don’t file BK until served a summons on these facts.

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fettywap (Mar 2, 2018 - 10:16 am)

Isn't your credit just trashed with $150,000 in debts outstanding? I'm pretty sure I would not have gotten my mortgage or car loan with that on my credit.

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khazaddum (Mar 2, 2018 - 12:01 pm)

If you are IBR and current on payments it doesn’t matter for most cars or mortgages. Debt paid monthly to income received monthly is general practice . If you pay $230/mo on IBR forever, you are current and assuming a sufficient income and less in other debts, you will get prime rates.

If you file BK you will get dozens of sub-prime Card and Mortgage lenders—since they can be guaranteed a number of years where you cannot file BK again.

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bazinga (Mar 2, 2018 - 12:42 pm)

Defaulted in 2009, so the 150,000 in outstanding, defaulted debts fell off my credit report in 2016. Now it shows up nowhere. It's still a legal obligation for which I could be sued, i.e., breach of contract, but that's where I'm counting on my SOL affirmative defense as described above.

Funny thing is, I had basically no credit from 2009-2012, but after that I got a car loan and normal credit cards again even with the defaulted debt on my credit report. After it fell off in 2016, I started getting offers for the good credit cards again, and better interest rates on my car loan.

As the guy above noted, all my federal loans are in REPAYE.

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bucwild (Mar 2, 2018 - 12:37 pm)

That's pretty amazing they didn't file suit to at least get some kind of judgment. Did they sell off debt to a third party or attempt any way to collect? How long were you current with loans before defaulting?

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bazinga (Mar 2, 2018 - 12:50 pm)

I graduated from law school in 2006. Probably started paying on the private student loans in late 2006 or early 2007, after all the grace periods and forbearance periods were exhausted. I paid like 900 dollars a month on them for two years and then couldn't make payments anymore circa early 2009. Private loans went into default in late 2009. Luckily for me, that was right around the time IBR came into being, so I saved my federal loans by putting them into IBR.

The private loan people called and hounded for awhile just like a credit card company would, sent letters, etc. But never sued. Eventually the calls stopped after several collection agencies just couldn't get ahold of me because I'd ignore any number that I didn't know. I changed my number for unrelated reasons in 2015 so it's not as if they could call me anyway without hunting me down. I live in the same state in which I defaulted so they can't claim that the SOL is tolled or that I'm avoiding service. Everything about me is on my credit report. They could find me if they wanted, sue me, and serve me with papers. They just never did.

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bucwild (Mar 2, 2018 - 1:00 pm)

Good for you. I wonder if the 2008 financial crisis had anything to do with why they left you alone. I'd caution anyone against copying you, sounds like you got lucky. The default falls off your credit report after seven years, yes?

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bazinga (Mar 2, 2018 - 5:00 pm)

Yup. The defaulted debt fell off my credit report in 2016. The only way it can ever hit my credit report again is if I get sued by the current owner of the debt and a judgment is rendered against me. That's where I'm hoping my SOL defense works, i.e., suit for breach of contract is time-barred in my state because they dragged their feet too long. My research has shown that it does work and that the worst that a court has done in this situation is apply the longer, six year, SOL for promissory notes to these suits instead of the often shorter SOL for breach of contract. Since the cause of action for me was 9 years ago, I am outside of the SOL in my state for both promissory notes and breach of contract.

I agree that no one else should try this. I just happened to get lucky probably because this was happening to a lot of borrowers after the crash. Try this now and you'd probably get sued.

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david61983 (Mar 2, 2018 - 1:21 pm)

I highly doubt there will be a tax bomb on IBR. There is none for PSLF and most of the public sector employees i know make good money and could easily afford the tax hit. It's the private sector employees who are hurting so I doubt they'll be hit with a tax bomb after 25 years. I'm saving just in case though.

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triplesix (Mar 2, 2018 - 1:41 pm)

((()))

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onehell (Mar 2, 2018 - 2:47 pm)

Being taxpayer money, and particularly with the IBR option, the discharge protection makes sense for federal loans.

But for private loans it makes no sense at all. There was no shortage of private lenders prior to BAPCPA extending the discharge protection to these loans in 2005.

I say, offer the private lenders an option. If they want discharge protection then they have to offer terms materially similar to the feds. Otherwise, they have plenty of ability to price the risk into the loans and therefore have no need for discharge-proofing.

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