Florida is a state that allows professional licenses to be suspended for non-payment of federal student loans. We had a client who came to us last month after having her LPN license suspended. This is even worse than a garnishment. Rather than 15% of her wages being garnished, which is difficult enough for most clients, she’s receiving NO pay. And her job could be at risk if she is replaced.
It took 2-3 weeks, but we fixed her federal student loan default, got her onto an affordable income based plan and lifted the suspension order. Fortunately, our client was able to retain her job.
Today, a client elected to have us settle her defaulted federal student loans in full by payment from her 401k. While we normally don’t recommend using protected 401k monies to settle debt, this particular client makes too much for debt forgiveness. A settlement now will likely result in 10% reduction in principal and waiver of the 25% collection fees since she is in default.
While you normally cannot settle federal student loans, there is an opportunity to do so when the loans are in default and a hardship exists. So by paying them now from her 401k, she’ll likely see a 1/3 reduction in her loan balance. Put another way, that’s a 35% return!
The average interest rate on federal student loans is also 6.8%. Most people are not getting those rates with CDs, money markets, stocks and bonds. So paying off the federal loans often makes sense from this perspective as well.
An Iowa appellate court ruled recently that a Income Driven Plan with a zero payment “does not ameliorate the undue hardship”.
In In re Martin, out of the Northern District in Iowa (8th Circuit) the lender argued that the debtor was not entitled to discharge the loans because she would qualify for an income-based repayment program, or IBRP, where she would qualify for a zero payment. In 20 or 25 years, whatever is left on the loans would be forgiven, but the forgiveness could be considered taxable income.
In 20 or 25 years, the debtor would be 70 or 75 years old, and whatever savings she amassed would be consumed by the maturing tax liability. In other words, Judge Collins said, the “tax liability could wipe out all of debtor’s assets not as she is approaching retirement, but as she is in the midst of it.”
Punitive damages are increasing as more people start challenging errors on their credit reports.
“Errors” is a funny word. A creditor will likely claim that it was an unintentional “error” that they reported negative information on your credit. But as it really an error?
Punitive damages are on the rise around the nation as more and more people and their consumer attorneys fight back over false information reported on their credit. Inadequate training of personnel, sloppy record keeping, debts being bought and sold repeatedly has led to greater frequency of credit report errors. Errors that can cause consumers thousands of dollars in increased credit costs. The lower someone’s credit, the higher interest rate they can be charged when borrowing money. A lower credit rating for consumers as a whole potentially increases the bottom line for financial institutions across the board.
Initially, twenty some years ago, I worked on the side of the student loan companies. Whenever someone in the State of Florida sought to discharge federal student loan debt in bankruptcy, I was often trial counsel for the student loan company. Our clients ranged from Sallie Mae, ECMC, TERI and USA Funds. Our track record was excellent – I recall losing only one trial down in Miami. It wasn’t really due to any great lawyering skills, it simply was very difficult to discharge student loans in bankruptcy. I traveled around the state handling trials and appeals in Tampa, Orlando, Jacksonville, Fort Myers and even Miami area – it may have been Fort Lauderdale – all I remember is it was a long way down there!
Why did I do that type of work? Well, I felt grateful for my own loans and believed in the system and wanted to help to make sure it was around for future borrowers. I would not be a lawyer today if it weren’t for the student loan system.
But you could say I’ve seen the light since then. Today, I work for borrowers. Nowadays, it’s nearly impossible for the vast majority of student borrowers to actually pay off their debt. When I graduated back in 1992, I owed 45k and my first job right out of law school paid 40k – roughly a 1 to 1 ratio. Fortunately, it was never hard for me to pay off that debt. But nowadays, I’ll see 3 to 1 ratios all the time, i.e. someone owing 90k in loans, but only making 30k.
Fortunately, there are several laws that provide both protection and damages for consumers facing errors on their credit reports. These include the Fair Credit Reporting Act (the “FCRA”), the Fair and Accurate Credit Transactions Act (“FACTA”) and most recently the Dodd-Frank amendments.
Credit reports are not only key to obtaining a home, vehicle, and credit cards, but they are also very important in obtaining employment, security clearances, insurance etc. Even if negative credit doesn’t prevent you from obtaining any of these things, you’ll pay a much higher interest rate if your credit has been damaged.
Pull your credit regularly to make sure your creditors are following the law and not causing you harm.
During the mortgage meltdown, many homeowners received financial assistance from a fund set up by Florida called Florida’s Hardest Hit Program. This was primarily for folks whose income dropped during the recession. Due to lack of funds, the program has now ceased taking applications.
However, there is one assistance program still open – the Florida Elderly Mortgage Assistance (ELMORE) program. This program offers as much as $50,000 to elderly homeowners who have reverse mortgages.
To qualify all persons must meet certain criteria listed here: ELMORE
Most of our debt collection laws in Florida apply only for consumer debt, not business debt. Sometimes the answer is not quite clear as to what type of debt is involved. What if for instance you operate a business and took out a loan, but signed a personal guarantee. Sometimes, that personal guarantee will have language referring to the debt being for personal, family or household use. That would likely make the guarantee a consumer debt.
By the way, that terminology comes from the Florida Consumer Collection Practices Act (“FCCPA”), Fla. Stat. Section 559.55-559.77 which defines a consumer debt as a debt incurred for “personal, family or household use.”
What happens if you buy a house, live in it for years, but then ultimately end up moving and renting it out? Or you rent out a room while you are living there? Commericial or consumer debt?
Both tenants and third party investors should be very happy that a new federal law goes into effect on June 23, 2018, that protects tenants in foreclosure. Basically additional notice is required and the tenants even have the right to remain in the unit for the remainder of the lease. A copy of the law (that had previously expired in 2014) is at the link below for the specifics:
While titled the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” the Act is generally called “the Crapo bill” after its lead sponsor, Republican Senator Mike Crapo of Idaho. With a few exceptions discussed below, the changes either carve out exceptions from compliance with consumer statutes or codify consumer protections that at least certain industry players are already following on their own.
Tenant Protections After Foreclosure of Landlord’s Property