Personal Bankruptcy in Minnesota
Q. Do my spouse and I have to file together?
A.No. Married individuals have the option of filing a petition alone or jointly. Strategic decisions like this are best discussed with your attorney during the consultation.
Q: Will I lose my retirement account if I file?
A. Usually no. The court sends notices to creditors when a case is filed, but not to employers. We would only notify your employer if you have a garnishment we need to stop.
Q: Will I lose my retirement account if I file?
A. Retirement funds that are in 401ks, union pensions, company pensions, IRAs up to one million dollars, federal and state employee pensions, and similar funds can be kept when going through the bankruptcy process.
Q: Can bankruptcy help with utility shutoffs?
A. Yes! If your utilities are shut off for unpaid balances, bankruptcy may be able to discharge the arrears. You might have to pay a deposit to the utility company for continued service though.
Q: Can bankruptcy help with payday loans?
A. Yes! Payday loans can be discharged in a bankruptcy.
Q: Will I have to go to court if I file for bankruptcy?
A. Yes. There is one short hearing you attend with your attorney. At this brief meeting, you answer general questions saying that all the information in your paperwork is correct.
Q: Do I have to go to classes to file?
A. Yes. Two classes that you can complete on line or on the phone are necessary to get in and out of bankruptcy court. They each generally take about an hour to complete.
Q: Are there different types of student loans?
A. Student loans fall into three general categories, federal, state or private. First, a federal loan is guaranteed, originated and funded by the Department of Education. For example, federal loans encompass Stafford Loans, PLUS Loans, and Perkins Loans. Secondly, a state loan originates from a state agencies, and administrated by such agencies. For example, Minnesota offers SELF Loans to students attending Minnesota colleges and higher education institutions. Thirdly, private student loans usually come from local banks or national banks, such as Wells Fargo, or Chase Manhattan. All of the above types of loans are non-dischargeable in bankruptcy.
Q: How are different types of student loans handled in default?
A. Failure of the borrower to pay off the balance differs between the type of loan the borrower has. In the case of a federal loan default, the remedy to getting the borrower out of default is a payment plan. Further, the borrower may be eligible for loan forgiveness if the borrower is in the proper professional field for the right amount of time. With a state loan, the borrower has much fewer options. In State loan default, there is no ability to cure the default. In the case of a Minnesota SELF Loan, the borrower cannot consolidate the loan, and the borrower is subjected to tax offsets and garnishments. The only two options afforded to borrowers with a SELF Loan is the standard monthly payment plan, and depending on the amount owed, a specific time period to repay the loan back in full.
Q: How do I know what type of loan I have?
A. Many borrowers mistakenly assume that all loans are private or federal. The truth of the matter is, most borrowers have a mixture of federal, state and private loans. To determine the type of loan you may have, I send my clients to the Department of Education Official website www.NSLDS.ed.gov to get their complete history of their federal student loans. It is 99% accurate. If your loan does not appear in the database, it is more likely than not a private or state loan. If you fail to find your loan in the NSLDS database, then I would suggest checking your credit reports. It is there that you may find additional information regarding your loans.
Q: When the primary borrower on a student loan dies, what happens?
A. Generally, when a primary borrower dies on a student loans, the loan is accelerated. This means that the entire balance of the loan is due.
Unlike most private student loans, a Federal Parent Plus Loan does not accelerate the loan payments once the primary borrower dies. This type of loan is government originated and is marketed to parents so that the parents can send their child to college. This is important. Section 1087(a) discharges the Parent PLUS Loan if the student dies before the parents. This difference makes having a Parent PLUS Loan better than a private loan. Furthermore, PLUS Loans are available to graduates and professional students.
Q: Can Bankruptcy help if a private loan is involved?
A. Somewhat. Student loans are not dischargeable in Chapter 7 bankruptcy in most cases, but under Chapter 13 bankruptcy, the procedure does allow the borrower or parents to the loan the flexibility to modify the payment terms of the loan. Basically, a Chapter 13 filing acts like a 5-year repayment plan, which saves the parents from having to pay the entire sum of the loan all at once. Other non-bankruptcy options for handling student loan may be a better alternative, so a consultation with an an attorney would be advised.
Q: Can student loans be discharged other than by bankruptcy?
A. Yes, a partial discharge is allowed for joint consolidated loans if one party dies, or if the borrower suffers from total and permanent disability as defined by section 682.402(c)(7)(iii)(c)(2), the loan is discharged and all collections must cease after notification from a physician in writing.
Another manner for student loans to be discharged is when a school closes due to losing school accreditation. The borrower must have been enrolled or withdrawn within 90 days of closure to be eligible for this discharge.
Still another form of discharge relates to false certificate and identity theft. If a thief steals your identity, and takes out loans in your name, you are not responsible for said loans. Likewise, if the loan has been altered or forged, you are not responsible for the loan and the loan is discharged.
Q: What can happen to me if I default on a federal loan?
A. If a borrower falls into default on his or her federal loan, the Department of Education (ED) has several methods to recoup. ED can recoup through debt collectors, administrative wage garnishment, federal tax refund interception, social security offset, and lawsuits through the Department of Justice.
Q: What can happen to me if I default on a Private Loan?
A. If the borrower defaults on a private loan, the lender may get a civil judgment against the borrower and any cosigners to the loan. Furthermore, the civil judgment affords the lender to garnish wages, levy bank accounts, and in Minnesota, this civil judgment becomes a lien against any and all land owned by the borrower in the county where the judgment is docketed.
A civil judgment in Minnesota lasts for 10 years, and can be renewed for another 10 years at the discretion of the lender. The lender has a 6-year time limit to file a civil judgment complaint with the court from the date of the last payment. If the lender fails to get a judgment against the borrower within the 6-year period, the borrower may raise a “statute of limitation defense” preventing the lender from obtaining a civil judgment.
Q: What does it mean to cure a student loan?
A. When a borrower falls behind in the payments or stops paying entirely, the borrower is in default. To cure a default means to bring the borrower back into good standing with the lender.
Q: How do I cure a federal default?
A. In order to cure defaulted federal student loans, the borrower has really two options: consolidation or rehabilitation. If the borrower choose consolidation, the borrower must pay the loan off by making three payments of the outstanding balance or be placed on a payment plan. If the borrower chooses rehabilitation, the borrower must make nine payments. Either options does not cease collection activities.
Q: What type of repayment plans are available for the Department of Education (Federal Loan)?
A. The borrower has several chooses under these repayment plans. These Income Driven Repayment (IDR) plans include Income Contingent repayment (ICR), Income Based Repayment IBR), Pay As You Earn (PAYE) and REPAYE. Each have their specific requirements and each have their pros and cons. An experienced student loan attorney can help you navigate through the complexity of the plans so you can select the best option.
Q: What type of loan forgiveness is available to borrowers for federal loans?
A. Some occupations may be eligible for loan forgiveness. Borrowers who are public servants or teachers may qualify for Public Service, or Teacher Loan forgiveness, provided the borrower meets the requirements. Again, an experienced student loan attorney can help explore what programs a borrower may qualify for under loan forgiveness.