Strategies for student loans in bankruptcy

Here at Shenwick & Associates, it is our experience that student loan debt is the fastest growing debt many people are burdened with. As of September 2016, outstanding student loan balances were $1.279 trillion and counting. This month, we're going to take another look at student loan debt, its dischargeability in bankruptcy and other potential tactics debtors can use to cope with it. Earlier this month, the New York Times reported on an effort by former students of ITT Tech to intervene in its bankruptcy to be recognized as creditors and to resolve their claims against ITT Tech for loan cancellation.

As many of our readers are aware, defaulted student loans are generally not dischargeable in bankruptcy except in special circumstances. The debtor must show that: (1) he or she cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off the student loan; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan; and (3) that the he or she has made good faith efforts to repay the loans. That was the holding in Brunner v. New York State Higher Education Services Corp., 831 F.2d. 395 (2nd Cir. 1987), the leading case on student loans and bankruptcy, and its reasoning has been adopted by most federal appellate courts.

However, non-bankruptcy remedies are available under federal and state law for student loan debtors, including loan consolidation, deferment, forbearance or a workout. These solutions may be better for many student loan debtors than bankruptcy.

1. Loan consolidation. Most federal student loans (except private loans) are eligible to be consolidated. However, if your loans are in default, you must meet certain requirements before you can consolidate your loans. Loan consolidation greatly simplify loan repayment by centralizing your loans to one bill and can lower monthly payments by giving you up to 30 years to repay your loans. You might also have access to alternative repayment plans you would not have had before, and you'll be able to switch your variable interest rate loans to a fixed interest rate.

2. Deferment. Deferment is a period during which repayment of the principal balance of your loan is temporarily delayed. Also, depending on the type of loan you have, the federal government may pay the interest on your loan during a period of deferment. The government does not pay the interest on your unsubsidized loans (or on any PLUS loans).

3. Forbearance. If you can't make your scheduled loan payments, but don't qualify for a deferment, your loan servicer may be able to grant you a forbearance. With forbearance, you may be able to stop making payments or reduce your monthly payment for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans (including all PLUS loans).

4. Workout. With the encouragement of federal banking regulatory agencies, some financial institutions that make private student loans offer workouts and loan modification programs. Your lender or servicer should be able to tell you the options available, general eligibility criteria and the process for requesting a workout or modification.

For more information about possible solutions to coping with your student loan debts, please contact Jim Shenwick

Happy holidays from Shenwick & Associates!

As the holiday season gets fully into swing here in midtown Manhattan, with tourists thronging around the store displays, we at Shenwick & Associates wanted to take this time to wish you a happy, safe and warm holiday season and a very happy and healthy 2017. We also wanted to thank you for your friendship, your business, your referrals and your trust in us. Complex cases that involve a mix of personal, business and tax debts are keeping us busy as 2016 draws to a close.  We’re here for you now and in the upcoming year, and we look forward to working with you.

Happy holidays and happy 2017 from Shenwick & Associates!

Resolving tax debts outside of bankruptcy

Here at Shenwick & Associates, many of our clients have concerns about tax debts. However, our bankruptcy practice is over 20 years old, and in our experience, tax debts are more easily resolved than student loan debts. In order to discharge taxes in bankruptcy, the taxpayer must show that: There is no fraudulent or willful evasion of the tax debt. The tax debt is at least three years old. A return for the tax debt was filed at least two years ago. The income tax debt was assessed by the IRS at least 240 days ago. Other options outside of bankruptcy also exist for resolving tax debts: Currently Not Collectible (CNC) Status. If the IRS agrees that you can't both pay your taxes and your reasonable living expenses, it may place your account in CNC (hardship) status. While your account is in CNC status, the IRS will not generally engage in collection activity (for example, it won't levy on your assets and income). However, the IRS will still charge interest and penalties to your account, and may keep your refunds and apply them to your debt. Before the IRS will place your account in CNC status, it may ask you to file any delinquent tax returns. If you request CNC status, the IRS may ask you to provide financial information, including your income and expenses, and whether you can sell any assets or get a loan. If your account is placed in CNC status, during the time it can collect the debt the IRS may review your income annually to see if your situation has improved. Generally, the IRS can attempt to collect your taxes up to 10 years from the date they were assessed, though the 10-year period is suspended in certain cases. The time the suspension is in effect will extend the time the IRS has to collect the tax. Offer In Compromise (OIC). An OIC allows you to settle your tax debt for less than the full amount you owe. It may be an option if you can't pay your tax liability, or doing so creates a financial hardship. The IRS considers your unique set of facts and circumstances: Ability to pay; Income; Expenses; and Asset equity. The IRS generally approves an OIC when the amount offered represents the most it can expect to collect within a reasonable period of time. However, to be eligible for an OIC, taxpayers must be current with all filing and payment requirements. Installment Agreement. If you're financially unable to pay your tax debt immediately, you can make monthly payments through an installment agreement. Before applying for any payment agreement, you must file all required tax returns. Tax cases and their resolution are challenging, even for experienced practitioners. For advice on how to deal with your tax debts, please contact Jim Shenwick.