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My Student Loans Are Coming Due Soon. What Do I Do?

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For many recent college graduates, the time of reckoning will be soon upon them.   They have graduated college and now the in-school forbearance of their student loans is running out.   Depending on the amount of student loans taken out, the borrower’s current employment status and income, and whether the loans are federal or private, the payment that will be due can be unaffordable and terrifying.

Most people facing their student loans first coming due are absolutely terrified about what to do especially if they can’t make the expected payment.  Panic sets in.   Unfortunately, too many people ignore their student loans because they can’t afford the payment.   That starts the downward spiral of the graduate’s financial health, sometimes permanently.  This is why it is important to be aware of your options from the onset instead of trying to figure what, if anything, you can do after you become delinquent on your student loan payments.

Most student loan borrowers are familiar with deferments as their student loans were deferred while they were attending school.  If you have either a private loan or an unsubsidized federal loan, any interest that accrues during the deferment period is capitalized at the end of the deferment period, if unpaid. This is the reason that the student loan principal balance is higher when the payments starting coming due after graduation.   The accrued and unpaid interest is not part of the principal balance of the loan.  If you have a subsidized federal loan, the during the deferment period, the federal government will pay the accrued interest.  Deferments on federal loans, can only be obtained for very specific reasons, including be enrolled in school at-least half time or during times of unemployment.  While, theoretically, the in-school deferment could last forever(if a student was able to maintain at least a half time status in school for that long), the unemployment deferment has a three (3) year duration, which may be taken at once or as needed.  Once the three year unemployment deferment is used, there are no more unemployment deferments available.   For private loans, deferments are up to the lender who will provide the terms and conditions under which they will grant a deferment.  Usually, they will grant in-school deferments but unemployment deferments are varied by lender.   Some will grant the same three year unemployment deferment that exists for federal student loan borrowers.

Forbearances are also temporary and permissible periods where a student loan payment is not required to be made.  Interest accrues and you have the option to make the interest payments or have them capitalized.  There are some grounds that automatically entitle you to a forbearance and if you don’t qualify for one of those grounds the forbearance, then the lender has the option to grant one to you.

While all of this maybe overwhelming, it shows the importance of handling your student loans correctly from the moment they become due.  You have very limited options to push out the payment date of your student loans and by doing so, you end owing even more before your payments start.

 While your options are very limited with respect to private student loans, it is best to contact your lender early and explore extended payment options, however with federal student loans, getting an unemployment deferment may be the worst thing that you can do.  The best thing you can do is explore alternative payment plans, particularly the Income Based Repayment and Income Contingent Repayment options. These options allow you to have a payment as low as $0 per month, since they are based off the borrower’s income, and allow for discharge of the outstanding balance after 25 years of payments.   By choosing one these repayment options, you are not using any of the deferment available to you, your loans are in a current status, and you are working towards the eventual discharge of your student loans.  With these options available to federal student loan borrowers, why would anyone ever choose an unemployment deferment ever again?

Student Loan Delinquency

(Is there any way to deal with these things?)

My firm has the only dedicated student loan law department in the country that I am aware of, and we follow the news about student loans.   There are many stories regarding student loans mainly focusing on two topics:  the growing student loan epidemic facing the country and student loan collection horror stories.  While I can spend countless hours reviewing the reasons why the student loan system is failing, I am going to focus on the growing number of student loan collection stories that are surfacing in the news.

More and more traditional collection agencies and law firms are entering student loan collections because they view it as the next great windfall in terms of collections.  In some respects, they are correct.  Based on the number of outstanding loans and the amount outstanding, the opportunity for collectors is unparalleled, however, student loan collection, at least government student loan collections, are not typical collections and leave plenty of opportunity for mistake.

Government student loans are issued directly by or guaranteed by the federal government.   Private loans are issued by private banks and not issued or guaranteed by the federal government.  Both private and federal student loans are non-dischargeable in bankruptcy.  Private student loans are bound by the appropriate statute of limitations, federal student loans are not and can be collected upon until paid, no matter how long that takes.  Private student loans, including the issuance of forbearances and deferments and alternative payment arrangements are in the sole discretion of the private lender.   Federal student loans have a variety of payment plans including a rehabilitation program when your loan is in default.   It is this key difference that causes problems for most student loan debt collectors.

Debt collectors work off one main principle – Collect as much money as you can as fast as you can.  The goal is determine how much you can collect and what threats or incentives from the collector to the debtor get the collector to their desired results.   There are usually not many formal rules as to how to collect a payment, meaning that if a collector got even a small payment from the debtor, they would take it.   Although the small payment would do nothing regarding the ultimate resolution of the debt, it gets the debt collector and the holder of the debt something even more important.  Even the smallest of payments restarts the statute of limitations on a debt and provides the debt collector a whole new window to collect on the debt.

Federal student loans work quite differently than private debt.   Federal student loan debt is not subject to any statute of limitations.  Additionally, there are governmental rules and regulations on how to collect federal student loan debt, including circumstances and situations where federal student loan debt can be discharged.    Federal student loan debt regulations are designed to help the borrower come current and make payments on the debt.This borrower –centric approach is foreign to debt collectors who are used to working and sadly, sometimes to debt collectors who focus on student loan collections.   All too often, federal student loan borrowers are not informed of these repayment options but the debt collectors and even when they offered them, there are times when they are mishandled by the debt collectors.

So what is a student loan borrower to do?  As with anything, it is always best to get assistance from trained professionals with knowledge in the area.   The trouble is that there are not many reliable sources of assistance in the student loan area.  That is why we started our student loan department. My firm is dedicated to assisting consumers experiencing financial difficulties and helping them understand their options.  We have Josh Cohen, also known as the “Student Loan Lawyer” who leads to the Student Loan department.  Between Josh, my staff, and me, we spend a large amount of time continually educating ourselves on the changes in the student loan arena.   We provide consultations that educate clients as to their options, on both private and federal loans, file litigation against debt collectors who violate collection laws, and assist borrowers get the desired payment option.   I believe we are the best source for information for student loan borrowers.   Feel free to contact the office to set up a consultation.

Tax Time-Why use a tax pro?

April 15 is rapidly approaching and many people are starting to think about getting their taxes prepared.  There is some good news in that tax returns are not due until April 17, 2012 so there are two extra days to prolong the inevitable but at some point, your tax return must be filed.

While the decision to file is not much of a decision unless you want to feel the wrath of the IRS for an unfiled return, the decision on how to have your taxes prepared is one that you are fully in control of and sadly, often one that is overlooked and done way too quickly.

There are many ways to have your tax returns prepared.   Options range from a do-it-yourself computer program to a large scale tax preparation service to a C.P.A. or other trained tax professional.  While most people focus on the cheapest option or simply using the same service that they have used in the past, it can pay to spend a little time to find the right tax return preparer for you.

What should a tax preparation professional do for you?  Most people are content with getting a refund, hopefully a large refund, and not paying attention to their taxes until the next year.  This type of thinking can often cost you a lot of money.

Here is a list of items that your tax professional should be covering with you:

1 – Your withholdings.  Are you over withholding taxes each paycheck?  A large refund is always nice to receive but you are giving the government an interest-free loan when you get a large tax refund each year.  Your tax preparer should help you adjust your withholdings so that you get use of hard earned wages each paycheck and still don’t owe taxes at the end of the year.

2 – Deductions.  While everyone wants to maximize their deductions, very few people know what deductions are available to them based on their income.  A qualified tax professional will help you understand what deductions are available to you and how you can maximize them.

3 – Filing Status – While most married filers filed their taxes under the married status, there are reasons to file separately.    Did you knowthat your federal student loan payments may be reduced based on your Adjusted Gross Income?   Therefore, you might want to file separately to reduce your student loan payments each month.

4 – Tax planning for the next tax year – When you are meeting with your tax professional, you should be talking about the next year’s return.  Why?  You have, at least, 8 months still left in the year and have plenty of time to plan so that you can reduce your taxes this year.  Whether it be contributing more to a retirement plan, using the Flexible Spending Account at work, or buying a house, your tax professional should be assisting you the whole way.

This list is not exhaustive but gives you a good idea as to ways that the right tax professional can make you money.  By looking at a tax professional as an investment rather than expense is the first step in getting the most out of your money.

Unfiled Tax Returns

Once a person doesn’t file a tax return for any reason, it is common for that person not to file subsequent years.   As a result, it is easy to find yourself having not filed numerous years of taxes and being paralyzed by the fear of not knowing what to do or even where to start to get the missing returns filed.  One this panic sets in, the delinquent taxes usually don’t get addressed until after the IRS either garnishes wages or levies a bank account to collect the delinquent taxes.

It is important to understand the process that happens when you don’t file a tax return.   At some point in time, the IRS will discover that there are 1099s, W-2s, or other tax documents that they have received but that have not been matched up to a filed tax return.  It is these documents that will provide the IRS with the information that they need to file a return for you.  The IRS will file a Substitute For Return (SFR) on your behalf.  It is important to realize that when the IRS files a SFR, they are not looking out for your best interests nor are they trying to maximize your deductions.  The IRS simply adds up all of the income that they are aware of, via the 1099s and w-2s, and use the standard deduction to calculate the tax that they believe is owed.   You are given credit for any estimated tax deposits or payroll tax deductions you have made then they add the late filing penalties, interest, and any other applicable penalty.   Clearly, this is not the way anyone wants their tax return filed for them.

Recently, we had two cases where the client had a substantial number of unfiled returns and in both cases, we were able to provide substantial relief to the client.

In the first instance, the client had not filed tax returns in 10 years and had no record of his W-2’s and other sources of income. Not having the required information made the tax return preparation difficult, however, we requested that the IRS provide all of information it had and then we worked with the client to get his returns prepared.

In the second case, the client also had unfiled tax returns for 10 years. And as a result, the IRS made tax assessments based on reported sources of income and prepared a SFR. The client was under the impression that the balance owed was over $165,000 based on these SFRs and did not know how to resolve this overwhelming problem. Here, too, the client could, only, provide limited documents and records. We contacted the IRS to obtain records of sources of income. We then prepared accurate tax returns for each year in question amending the SFRs resulting in a new outstanding tax balance of approximately $19,000. We were successful in getting the tax liabilities reduced by merely preparing corrected tax returns.

These are great examples of cases where it seems like the client was in a hopeless situation but with a little hard work, great results were achieved.  So don’t be afraid to call my office and get the help you need to get your tax problems resolved.

Debt Tagging – The Newest Craze

I Am Being Garnished For What? Recently, someone sent me a story in the Orange County Register about California State Senator Lou Correa who received a phone call from his payroll department at the state informing him that they received a wage garnishment as a result of a judgment against him.   He thought it was a joke but soon found out that it was very real.  The debt was actually owed by someone with an almost similar name.  Sen. Correa even previously told the debt collector that the debt wasn’t his but that didn’t seem to matter or stop the debt collector from issuing the wage garnishment against the Senator’s wages.  For their troubles, the debt collector’s action caused the Senator to plan to convene a hearing on debt collectors and the practice of “debt tagging”.  Debt tagging is the practice of collecting a another person‘s debt from you.  For those interested in the story, it can be found here, http://taxdollars.ocregister.com/2011/06/03/debt-collector-erroneously-garnishes-oc-lawmakers-wages/84371/.

Another case of debt tagging was also just reported where the wrongfully garnished debtor sued the judgment creditor and its law firm for twice attempting to garnish the plaintiff’s wages, including a successful second attempt that resulted in a wage garnishment even though the creditor’s law firm failed to attend a required hearing.  This is an even more egregious case because the law firm collecting on the debt was informed by their own client that the law firm was going after the wrong person. The jury awarded the plaintiff $1.26 million for being subjected to this harassment.  The link to this story is supplied here, http://www.collectionscreditrisk.com/news/woman-awarded-in-collection-wage-garnishment-case-3007259-1.html

I know that it sounds unimaginable that you could have your wages garnished for a debt that is not yours but sadly, this is happening to people around the country on an all-too-frequent basis.  Debt collectors will take action against someone with the same or similar sounding name hoping that the person who bank account they levy or whose wages they garnish, will not fight the garnishment or levy.  This conduct is illegal and has gotten at least two creditors in the news.

While I encourage the California State Legislature and all other legislative bodies to make these recalcitrant creditors responsible for their actions, it is clear that the only way to change the practice is by bringing an action against these collection firms and make them pay for their conduct.   The more that the court system sees that this illegal conduct happens with regularity, the more opportunities juries will have to make the creditors pay for their actions.

If you are the victim of debt tagging or other creditor abuses, please call my office for a free consultation.

I Graduated College and Will be In Debt Until I Die

I Graduated College and Will be In Debt Until I Die

(How Do I Manage My Student Loan Debt?)

One of the biggest questions we get in the law firm involves student loan debt.   The scenarios may change but the basic premise is usually the same: I am behind on my student loan payments.  Collectors are calling me demanding unaffordable payments.  The scenario is so common that in a recent episode of Two Broke Girls that dealt with one of the main character’s debt problems, one of the debts was a student loan debt.   The student loan was unpaid and had been for years, according the storyline, and there was constant comments about how the student loan wasn’t going to ever go away.

While the thought of debt that lasts forever was designed to bring laughter to the viewers, the sad reality is that there are too many people in this country for whom this is no laughing matter.   They wake up each up and every day stressed about how they are going to pay their student loans.  Paying off their student loans will take longer than paying off a mortgage on a house and there is virtually no information out there on how to actually pay off your student loans or to deal with student loan debt collectors.

For this reason, I am excited and proud that we have started a full-time student loan department.  The department is headed by Joshua Cohen, who is known as “The Student Loan Lawyer.”  Joshua has spent the last 3 years dealing with a variety of student loan issues on behalf of clients and has seen first- hand the problems that many clients face.   To the best of my knowledge, the Law Offices of Craig Zimmerman is the first law firm in the United States that has a full-time dedicated department dedicated to student loan law.

I think that there needs to be a lot more lawyers helping student loan borrowers and that, overall there needs to be a lot more discussion over the student loan problem in this country.   Each and every year, there are thousands, if not millions, of students who enter college without a true understanding of the amount and the terms of the debt that they are taking on. Hope springs eternal that the job market will be better and that their student loan payments will be manageable.  Too often, this is not case.   Even with decent employment, the staggering amount of student loan debt is, at times, unmanageable.

I want to hear from those who are having troubles managing their student debt.  Email me your situation at czimmerman@craigzlaw.comand let’s see what can be done.

Bankruptcy Filings Are Down But Does That Mean The Economy is Improving?

I recently read an article that said that nationally bankruptcy filings are down 8%.  Normally, that would be an indicator that the economy is improving, however the writer suggested that this was not the sign of an improving economy but was really proving that the economy was worse off than most people realized.  He felt that people simply cannot afford to file for bankruptcy protection and as soon as they can afford to do so, bankruptcy filings will increase.  There are people who look at these indicators and use them to overestimate their own personal financial situation.

Given the economic hardships that the country has faced the last couple of years, people are looking for any positive sign they can, hoping that the economy has turned and that more prosperous time are ahead.  While I join the nation in hoping that we are on the road to economic recovery, too often I see potential new clients who let their hopes for a better future cloud their judgment leading to further stress and financial problems that could have been avoided.

I know that no one wants to admit that they are in financial trouble; however, recognizing the signs early and getting competent advice regarding your options is always the best thing to do.  So what are the early signs that you may be experiencing financial difficulties?

1 – You are only paying the minimum amounts due on your credit cards.  Most people will tell you that when they are paying the minimum amounts due on their credit cards they are “paying their bills” and are not in trouble.   That is far from the truth.   If you take a look at your credit card statement, it will show you how long it will take you to pay off the current balance, assuming that you make no more charges on the card, if you only make the minimum payment that is due and that payment is on time each and every month.   Often, it is stated that it will take as short as 8 years and as long as 22 years to pay off credit card debt.  22 years to pay off a credit card and what will you have to show for it?  Anything you bought with the credit card will be long gone.  Your credit score may be good but you could go broke keeping it.  If you don’t have a viable plan to pay off your credit card debt in a reasonable amount of time then you could be in financial trouble.

2 – You are not contributing money to a retirement account nor have other savings plans for contingency purposes.  The sad truth is that many Americans are living paycheck-to-paycheck and do not have any savings for emergency purposes and are not contributing fully to a retirement plan.   They need the money now to meet their monthly obligations.  While I love what I do and enjoy coming into work every day, I want to be in a position to not have to do it every day and be able to afford to retire, not depending on Social Security in my golden years (who knows if it will even be around at that time).   The only way to ensure that you can retire is to start saving now.  It is never too late start.  This includes starting savings accounts for emergencies, major asset purchases including cars, children’s educations, and even a vacation.  When you are spending all of your paycheck on basic living expenses with no savings, you may be in financial trouble.

3 – You are paying too much of your income to maintain your residence.   This is probably the most sensitive subject that I deal with when talking to clients.  Too often, I see a client who has a house that is severely underwater and they are spending a large portion of their net pay each month to make the mortgage payments.  They scrimp and make the payments usually before the payment is late so that a late fee isn’t imposed but yet allowing additional interest to accrue.   In my opinion, home ownership should be treated as a business decision and when owning the home is no longer a good business decision, yet you are still paying for the house, you may be in financial trouble.  I am not advocating that everyone who is upside on their real estate walk away from it but rather I am stressing that when you see that the property is taking too much of your money income and is worth much less than you owe on it, you may be in financial trouble.

There are, of course, many more signs that you may be in financial trouble.  No matter what factor is causing you to review your finances, once you see the signs, it is always best to seek competent legal and financial advice regarding your debt.   The sooner that you do it, the more options you may have and the quicker you can get back on the road to recovery.

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