Social Security Garnished to Pay Student Loans

Student loan default is an epidemic problem among senior citizens. The default rate currently stands at over 12%, more than three percentage points higher than borrowers under 30 years old. According to the U.S. Treasury, more than 156,000 seniors had money taken from their monthly Social Security checks to pay delinquent student loans last year. In contrast, the number of Social Security checks garnished for student loan payments during 2000 was. . . six.

The Trouble with Co-Signing

Many older Americans find themselves deep in student loan debt due to a co-signer obligation. Many are unaware that co-signing a student loan obligation makes the co-signer obligated for 100% of the loan. If the student/borrower is unable or refuses to pay, the lender may seek to collect from the co-signer.

Government-Guaranteed Student Loans

If a defaulted loan is government-backed, the government may collect from government funds owed to the debtor. That could be Social Security, disability checks, income tax refunds, government retirement pensions, or other government money the debtor is entitled to receive. The government may garnish 15% of the entitlement through the Federal Payment Levy Program.

Bankruptcy Can Help

While it is well-known that student loans are difficult to discharge, filing bankruptcy can provide time to repay student loans, or simply provide a breathing spell from collection. During a Chapter 13 case, the bankruptcy automatic stay protection stops garnishment and other collection actions against the debtor and all co-signers -- regardless whether the student loan is paid during the bankruptcy case.

If you are in danger of garnishment from a defaulted student loan, speak with an experienced bankruptcy attorney. Your attorney can review your situation and discuss your options for repayment, forgiveness, or discharge using the federal law.

 If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Are Your Student Debts Student Loans?

 Baseball pitcher Tom Glavine was recently enshrined into Major League Baseball’s Hall of Fame in Cooperstown, New York. Glavine’s Hall of Fame plaque describes him as a "Durable, dominant and deceptive starting pitcher whose control, change of speeds and placement of pitches translated into 305 wins." Glavine was renown for pitching to the corners of the plate, away from the batter’s strength.

Glavine’s approach is copied by many bankruptcy attorneys when attempting to discharge a student loan. The federal courts have interpreted the “undue hardship” standard for discharging a student loan as an extremely high bar. In most cases, seeking to discharge a student loan on the basis of undue hardship is simply setting the creditor up for a home run.

Instead, many bankruptcy attorneys nibble at the corners of the Bankruptcy Code.

One discharge tactic is to exploit the distinction between student loans described in Bankruptcy Code Section 523(a)(8)(A)(i) and student debts defined in Section 523(a)(8)(A)(ii). A nondischargeable student debt is “an obligation to repay funds received as an educational benefit, scholarship or stipend[.]” The key language here is “repay funds.” Some courts have found that “an obligation to repay funds” can only arise after funds are actually distributed. If no money changes hands, then the debt does not qualify under Section 523(a)(8)’s exception to discharge. See In re Oliver, 499 B.R. 617 (Bankr. S.D. Ind. 2013); In re Christoff, 510 BR 876 (N.C. Cal. 2014).

This approach is useful when a college or university keeps a student “tab” for tuition, fees, and/or education-related expenses. Since no funds are distributed, no obligation to repay is created. Consequently, these debts are not excepted from the bankruptcy discharge.

Nibbling at the corners can mean real victories on the ball field or in the bankruptcy court. If you are obligated for student debts or student loans, speak with an experienced bankruptcy attorney and discuss your options. 

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

What Happens if I Default on My Mortgage after a Bankruptcy Discharge?

 Trouble making your house payments after a bankruptcy discharge can cause a slew of financial complications. Fortunately, lender and government-backed modification programs like the Home Affordable Modification Program (HAMP) provide opportunities to keep your home. If these programs fail, the Bankruptcy Code offers a few solutions. The right approach depends on whether you want to walk away from the debt or pay and keep your home.

Walk Away

If you decide to “walk away” after bankruptcy, the pressing question is whether you are personally on the hook for any of the debt. In other words, did your prior bankruptcy case discharge your personal obligation to pay the mortgage? For many, the answer is “yes,” and you can “walk away” from the home loan without repercussion. Additionally, under some state laws, a foreclosure does not give rise to a deficiency balance on a home loan, regardless whether the personal liability was discharged.

After a Chapter 7 Discharge. A Chapter 7 discharge order from the bankruptcy court discharged you from all debts that arose before the commencement of your case. If you had a pre-bankruptcy mortgage, that mortgage was included in your discharge order, unless it was excepted. The most common way a mortgage debt is excepted from a Chapter 7 bankruptcy discharge is through a reaffirmation agreement. If a reaffirmation agreement between you and the creditor was not filed with the bankruptcy court before your discharge order was entered, your personal obligation was discharged. Home loan reaffirmations are becoming increasingly rare because many attorneys advise against it and some bankruptcy courts will not approve a home loan reaffirmation agreement unless there are substantial changes to the loan that benefit the debtor.

After a Chapter 13 Discharge.

A Chapter 13 bankruptcy discharge also discharges all debts that arose before the commencement of the case, including a home mortgage debt, unless it was excepted from the discharge order. The most common way a home mortgage is excepted is when the mortgage is a long-term debt that is modified or cured during the Chapter 13 case. While some courts contend that all mortgage debts are long-term debts that survive the bankruptcy intact (meaning you are still personally obligated), other courts hold that a mortgage that is not delinquent on the day you filed bankruptcy and is not cured through the Chapter 13 plan is included in your discharge (meaning you are no longer personally obligated).

A Second Bankruptcy

If the personal liability for the mortgage debt was not discharged during your previous bankruptcy case, you may be stuck with a large deficiency balance from the disposition of your home. A second bankruptcy case may be an option. While there is generally no restrictions on a second bankruptcy case filing (there are in few, limited circumstances), the Bankruptcy Code places time limits on the availability of a subsequent discharge:

Original Bankruptcy

New Chapter 7

New Chapter 13*

Chapter 7

8 years

4 years

Chapter 13

6 years

2 years

      *There are special rules for prior Chapter 13 cases

The above time periods are measured from the date the previous case was filed, not from the discharge date. For instance, if you filed Chapter 7 bankruptcy (and received a discharge) on June 1, 2012, then:

1.      on June 1, 2020 you are eligible to file a Chapter 7 bankruptcy case and receive a discharge (the Eight Year Rule); and

2.      on June 1, 2016 you are eligible to file a Chapter 13 bankruptcy and receive a discharge (the Four Year Rule).

Tax Implications

Be warned, a foreclosure sale after discharge may create a tax liability. The most common of these arises from the creditor’s cancelation of the debt, commonly called a “write-off.” If a creditor cancels or forgives a debt over $600, it is required to notify both you and the IRS. The IRS considers this money income and expects you to pay taxes on it. A recent tax debt is not a dischargeable debt.

Keep the Home

As mentioned previously, there is nothing that prohibits a second bankruptcy filing, even when a bankruptcy discharge is not available. By filing a new Chapter 13 bankruptcy, you may use the benefits of Chapter 13 to strip off an unsecured junior mortgage or cure a default over three to five years. Chapter 13 may buy you time to pay an arrearage, modify your loan, or sell your home.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Some Student Loans ARE Dischargeable

 There are many myths surrounding the topic of discharging student loans in bankruptcy. Some say you can’t do it. Others say you can discharge student loans only if you can prove hardship. Still others say you can discharge private student loans, but not federal student loans. Wrong, wrong, and wrong.

All debts are discharged in bankruptcy unless there is an exception. One exception is for student loans, but only certain types of student loans. To qualify for the exception to discharge, the student loan must first meet the requirements of Section 523(a)(8) of the Bankruptcy Code. Non-dischargeable student loans include loans that:

(1)   have been made under a government or nonprofit student loan program, or

(2)   are qualified educational loans for attending an eligible education institution as defined by the Internal Revenue Code.

The loan must also be incurred to pay costs of attendance as defined in Section 472 of the Higher Education Act.

There are two types of student loans: federal and private. Federal student loans nearly always fall under the exception in Section 523(a)(8), but private student loans sometimes do not qualify. For example, some for-profit technical or trade schools do not qualify as an “eligible education institution” because the school is not accredited under Title IV of the Higher Education Act. There may also be defects in the loan, like it was not incurred to pay costs of attendance. If a private student loan does not meet one of the criteria for a non-dischargeable student loan, the debt can be discharged in a Chapter 7 or Chapter 13 bankruptcy case and the exception listed in Section 523(a)(8) does not apply. Section 221(d) of the Internal Revenue Code contains a lengthy list of requirements which must be met before a loan can qualify as a student loan.  If the loan fails to meet these criteria, the debtor may be able to discharge them in bankruptcy.

Student loans may be sold or transferred to several different companies during the repayment term. The debtor may not remember the original lender for a loan taken years earlier. How does a debtor discover whether a student loan is private or federal? Simply go to the National Student Loan Data System (NSLDS) at and enter personal information. The debtor will need to recall a PIN number, but this information may be retrieved if not remembered. The NSLDS will display a list of all federal student loans for the debtor. If a loan is not listed on this database, it is a private student loan.

Student loans can be a heavy burden. Fortunately, there are many options for repayment, deferment, reduction, and even discharge for federal student loans. Discuss your student loans with your attorney and review your legal options. In many cases bankruptcy can eliminate other debts that can allow you to afford repayment, or you can temporarily pay a reduced amount during a Chapter 13 bankruptcy. Your bankruptcy attorney is able to help you decide on a reasonable and affordable strategy for dealing with student loan debt.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

How Having a Car Loan Can Help in Bankruptcy

 The U.S. Supreme Court in Ransom v. FIA Card Services instructs that above-median debtors can take a vehicle ownership deduction of around $500 on the Means Test when calculating Projected Disposable Income, but only if there is a lien on the vehicle at the time the bankruptcy case is filed.


Ransom gives debtors a great incentive to ensure there is at least one vehicle with a lien on it for a single person, and that two vehicles have liens if filing jointly. If there are no financed vehicles, then the debtor cannot claim the approximately $500 per month deduction, which (over a five year plan) has the potential to amount to an extra $30,000 dividend paid out to unsecured creditors. That number is doubled for married couples with no vehicle liens. Instead of paying off one or more car notes during a bankruptcy, that money is used to pay unsecured creditors.

Car Title Loan

Putting aside the question of whether obtaining a title loan (or a small loan from a family member secured by the debtor’s car) just prior to filing for bankruptcy could incur a bad faith objection, let’s ask a more intriguing question: does taking a title loan on a car to create a lien trigger the vehicle ownership deduction in the first place? Several bankruptcy courts have addressed the matter, and found that a title loan is not sufficient to qualify for the vehicle ownership deduction. These courts looked to the language found in the IRS Manual, and concluded that “the intent of the deduction for vehicle ownership expenses is to accommodate the costs of acquiring a vehicle, and not expenses incurred by a debtor using the vehicle as collateral for some other sort of debt, such as a title loan.” In re Carroll, Case No. 12-41350-JDP, slip op., 4 (Bankr. Idaho April 15, 2013); see also In re Alexander, 2012 WL3156760 (Bankr. W.D.Mo. 2012); and In re King, 13-10689-WHD (Bankr. N.D.Ga. 2013).


Trade for another Vehicle

While the bankruptcy trend is to disallow an attempt to qualify for the ownership deduction with a title loan, the debtor may consider a vehicle trade to a new, used vehicle with a small amount financed. A Chapter 13 debtor may also consider financing a new vehicle just prior to filing bankruptcy to ensure case success.


Make Sure the Loan is “Perfected”

It is important that the debtor’s vehicle is used to secure a loan in order to receive the vehicle ownership deduction. For most states that means executing a promissory note and recording (“perfecting”) the lien with the Department of Motor Vehicles. As a general rule, simply writing on the title or taking possession of the title is not enough.


In theory, giving a security interest before bankruptcy can protect otherwise non-exempt property during the bankruptcy case. For example: suppose the debtor “borrowed” money from mom to buy a car. No lien was ever recorded (because good sons always repay their mothers!). On the eve of bankruptcy, the debtor owes mom $8,000 and the car is worth $8,000 (or $5,000 more than his state’s exemption law will allow him to protect). So, the debtor can simply give his mother an $8,000 secured interest in the car, right? Then the Chapter 7 trustee would have to pay mom $8,000 should he liquidate the car. In other words, the car is fully secured, mom’s secured interest survives the bankruptcy (and the debt may be reaffirmed by the good son), and there is no longer an equity issue.


A lien given for an antecedent debt on the eve of bankruptcy is a preferential transfer that the trustee can avoid. The debtor received nothing new when he gave his mother the lien. The trustee can take and sell the property without paying mom (who would be just a general, unsecured creditor after the lien is avoided).

The Bankruptcy Code is chock full of protections to shield income, property, and assets from creditors. Working with an experienced bankruptcy attorney can help you get the most out of the bankruptcy laws. 

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Formula Changes May Raise Individual Credit Scores

 In our electronic age, it is tough to avoid negative reporting on your credit report. An honest oversight could mean a missed payment, and one 30 day late payment will drop a 780 credit score as much as a hundred points. The drop is less if you have a lower credit score. Likewise, a disputed collection account can also affect your credit score, even if the matter is ultimately paid or otherwise resolved.

Recently, the Fair Isaac Corp. announced that it will stop calculating FICO credit scores using collection agency debts that have been paid or settled. It will also give less weight to unpaid medical bills that are with a collection agency. This change in the credit score formula is expected to make it easier for tens of millions of Americans to get loans.

The Fair Isaac Corp. made this move after months of discussions with lenders and the Consumer Financial Protection Bureau. The intent is to increase lending opportunities for consumers without creating greater credit risk. A higher credit score generally means lower interest rates for personal loans, credit cards, and major purchases, such as vehicle or real estate.

According to Experian, a major consumer reporting agency, 106.5 million consumers have a collection account on their credit report, and 9.4 million accounts have no balance. Additionally, approximately 64.3 million Americans carry one or more medical collection account on their on their credit report. Consumers are sometimes surprised to discover that their insurance company did not pay a medical bill, and can learn of this failure only after the account has been turned over to collections.

Fair Isaac will offer its new scoring model, named FICO 9, to credit bureaus this fall and to lenders later this year. However, it is up to the credit bureaus and lenders whether to use this new scoring model. It often takes lenders several years to adopt the newest version.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Where Do You Get Your Bankruptcy Advice?

 This just in, lawyers are expensive. Useful legal advice from a licensed attorney costs. No attorney who values his law license is going to give a free, off-the-cuff opinion that may be used against him in a court proceeding (especially a pro se case). Lawyers are also busy (mostly talking on the phone to relatives and friends who want free legal advice). So where do you get a quick and free legal opinion on a bankruptcy issue?


Google just about any bankruptcy topic and you will get back thousands of hits. The internet is a wealth of information, and misinformation. The Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and loads of bankruptcy case law are all free and searchable on the internet. Unfortunately, relying on internet bankruptcy information is like giving a person with a bullet wound a scalpel, a mirror, and a copy of Gray’s Anatomy. Without training and experience, tools are little use and may make things worse.

There are also many bankruptcy message boards where anyone can ask a legal question and get “good advice” (from a know-it-all non-lawyer or paralegal who has never represented a bankruptcy debtor), or the “right answer” (for the wrong jurisdiction). Even asking a licensed attorney a legal question on the internet has serious limitations; the poster must frame the question properly. The old computer adage rings true on internet legal advice, “garbage in, garbage out.”


Publishing companies have sprung up offering legal advice for lay people. These books contain general advice that may or may not apply in your specific situation. Bankruptcy books are a great overview of the bankruptcy process, but books are no substitute for the experience of a seasoned bankruptcy attorney.


Your friend, family member, or co-worker who successfully completed a bankruptcy may have practical advice for you, but what worked in that case may not apply to your own. Every case is different and small differences, such as differences in payments, ownership, or income sources, can mean very different results.

Legal Insurance Plan

Legal insurance plans are known by a variety of names, but all plans provide the same promise: the availability of a licensed attorney at a free or reduced charge. These plans are very popular with struggling attorneys and law firms, especially newly licensed attorneys. Many legal plan attorneys follow the rules of the plan and try to provide honest services. Others will pull a “bait and switch” and try to talk the plan holder into spending more than the plan allows.

If you are struggling with debt, seek professional advice from an experienced bankruptcy attorney in your own area. Your attorney can guide you through the process and help you avoid creating problems for your case. The benefits of paying for quality legal advice specifically tailored for your financial situation far outweighs any savings from cheap or free secondary sources.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Why life insurance is a good idea when you are in debt

 Death comes for us all. Life insurance can ease the financial pain and pay the expenses of an unexpected demise, as well as provide for the welfare and support of loved ones. Everyone knows this. What many do not know is how death can affect a family’s debts. Many personal debts are not “carried to the grave” and can survive after death.

General Rule

The general rule is that a personal debt belongs to the individual. For example, a husband’s individual Visa card debt is not also the personal obligation of his spouse. However, the rules change in a community property state. Many debts that are incurred during a marriage by one spouse are the obligations of both husband and wife. That means the wife in our example may get stuck with the Visa bill in a community property state. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin (plus Alaska, under certain circumstances).

Joint Debts

Unlike individual debts, many joint debts create multiple liabilities. When a husband and wife are joint account holders of a Visa card, they are both “jointly and severally liable” to pay 100% of the Visa debt. If the husband dies, the wife is stuck with 100% of the Visa bill, not 50% (unless the contract specifies).

These kinds of joint obligations are also found in co-signed or “guaranteed” debts. CNN Money recently ran a heartbreaking story about a young mother who died from liver failure. She left three children in the care of her parents. She also left them with a $200,000 student loan debt they had co-signed. The parents are now obligated to repay the daughter’s student loans, reportedly $2,000 per month.


When a person dies, whether personal debts are paid depends largely on if a probate estate is opened and the availability of probate assets for creditors. A decedent’s estate is responsible for paying off the individual’s creditors, such as medical bills and loans. If the estate goes through probate, an administrator or executor will account for assets and debts, and determine the order in which creditors and heirs will receive money.

Life Insurance

Many of these after-death debt problems can be solved by purchasing one or more life insurance policies. Life insurance is a “non-probate asset” which means that it passes to a beneficiary(ies) without first going through the probate process, as the name suggests. Life insurance is generally exempt from the taxes of the beneficiary (no inheritance tax). This money can be used to pay debts that may survive death and are passed on to co-debtors, joint debtors, and spouses.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

When Can I File Another Bankruptcy Case?




The federal bankruptcy law does not limit the number of times an individual can file for bankruptcy protection. The Bankruptcy Code only restricts how often a debtor may receive a discharge of debts. When an individual is facing overwhelming debt and needs relief from creditors, the bankruptcy laws provide powerful protection. In some cases that protection can be a discharge of debt; in other cases, it means an opportunity to repay what is owed, or just time to negotiate with a creditor.

An individual may file multiple bankruptcies for many reasons; a discharge is not the only benefit of proceeding with a Chapter 7 bankruptcy. When a discharge of debt is needed, the federal law limits time between discharges:

1.      After receiving a discharge in a previous Chapter 7 bankruptcy case, the debtor must wait eight (8) years before he is eligible to receive another Chapter 7 discharge. See 11 U.S.C. § 727(a)(8).

2.      After receiving a discharge in a previous Chapter 7 bankruptcy case, the debtor must wait four (4) years before he is eligible to receive a Chapter 13 discharge. See 11 U.S.C. § 1328(f)(1).

3.      After receiving a discharge in a previous Chapter 13 bankruptcy case, the debtor must wait six (6) years before he is eligible to receive a Chapter 7 discharge. See 11 U.S.C. § 727(a)(9).

4.      After receiving a discharge in a previous Chapter 13 bankruptcy case, the debtor must wait two (2) years before he is eligible to receive a Chapter 13 discharge. See 11 U.S.C. § 1328(f)(2).

These restrictions are not statutes of limitations nor make the debtor ineligible to file for bankruptcy protection. Neither does an intervening bankruptcy toll the waiting period.

The above time periods are measured from the date the previous case was filed, and are not measured from the discharge date. For instance, if a Chapter 7 bankruptcy is filed (and subsequently discharged) on June 1, 2005, then:

1.      on June 1, 2013 the debtor will be eligible to file a Chapter 7 bankruptcy case and receive a discharge (the Eight Year Rule); and

2.      on June 1, 2009 the debtor is eligible to file a Chapter 13 bankruptcy and receive a discharge (the Four Year Rule).


A debtor’s ineligibility to receive a discharge does not prevent the debtor from filing a new bankruptcy case. In some cases a discharge is not needed. A debtor can file a Chapter 13 bankruptcy and repay debts without receiving a discharge. In this situation there is no legal limitation between bankruptcy cases. This strategy is especially useful when faced with nondischargeable debts that must be fully paid. The obligation can be paid over time under the supervision and protection of the bankruptcy court. In some rare cases of abuse a bankruptcy court may deny the debtor relief. This can occur when a debtor has shown a history of repeated bankruptcy filings that have been dismissed (called a “serial filer”).


If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Domestic Support Contempt Actions during Chapter 13 Bankruptcy

 Once a bankruptcy case is filed, the bankruptcy automatic stay stops creditor collection action and provides the debtor some temporary breathing room in order to restructure personal finances. There are limits to this protection, however. One of the most common exceptions during a Chapter 13 bankruptcy case concerns collection and enforcement of domestic support obligations (DSO), such as child support and alimony. 

The Bankruptcy Code allows two ways to enforce and collect a DSO after the debtor has filed bankruptcy:
•Section 362(b)(2)(B) allows “the collection of a domestic support obligation from property that is not property of the estate.” 
•Section 362(b)(2)(C) allows actions “with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute.”
When a DSO is enforced through a state court contempt action, the bankruptcy court first considers whether the DSO is collected or enforced from property of the bankruptcy estate. The debtor’s property is part of his bankruptcy estate, such as bank accounts, vehicles, and real estate. Wages and other income streams are also property of a Chapter 13 debtor’s bankruptcy estate. Consequently, when a state court holds a Chapter 13 debtor in contempt, the exception at issue is usually Section 362(b)(2)(C), which permits enforcement or collection from property of the bankruptcy estate.
When a state court seeks to hold a debtor in contempt for non-payment of a DSO, the critical question is whether the DSO involves a judicial or administrative wage garnishment. Appellate courts have found that enforcement through state court contempt violates the bankruptcy automatic stay if the debtor is compelled to pay a DSO during bankruptcy where there is no garnishment or other wage withholding order. See In re DeSouza, 2013 WL 2991034 (1st Cir. B.A.P. 2013); Lawinda v. Seyffer (In re Lewinda), 2011 Bankr. LEXIS 4299 (B.A.P. 9th Cir. Aug. 1, 2011). Note that some lower courts have permitted enforcement of a DSO through contempt on bankruptcy estate property without a wage withholding order, so long as there is a court or administrative order establishing the obligation. See In re Powers, 2010 Bankr. LEXIS 825 (Bankr. S.D. Ind. Mar. 12, 2010); In re Friedberg, 2009 Bankr. LEXIS 1542 (Bankr. D. Conn. May 8, 2009)).
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to