Here is a very interesting article about how consumers with student loan debt are finding it difficult to purchase a home.

http://www.nbcnews.com/business/economywatch/student-debt-housings-1-trillion-challenge-1C9255081

Article Source: www.nbcnews.com

Last Accessed April 9, 2013.

Here is a very interesting article from The Huffington Post. Feel free to contact our office if you are struggling with your student loans - we may be able to help you reduce your payment!

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Total student debt has nearly tripled over the past eight years, a new report from the New York Federal Reserve has found.

Total student debt stands at $966 billion as of the fourth quarter of 2012, the N.Y. Fed said in press materials, with a 70 percent increase in both the number of borrowers and the average balance per person. The overall number of borrowers past due on their student loan payments has also grown, from under 10 percent in 2004 to 17 percent in 2012.

Fewer people with student loans are buying homes, according to data in the report. Of borrowers ages 25 to 30 who are taking out new mortgages, the percentage of those with student debt has fallen by half, from nearly 9 percent in 2005 to just above 4 percent in 2012.

The fed report sees a connection, stating, "The higher burden of student loans and higher delinquencies may affect borrowers' access to other types of credit and the performance of other debt."

This is what the Consumer Financial Protection Bureau cited last week when it announced a new inquiry into ways to allow graduates with private student loans to refinance.

CFPB Student Loan Ombudsman Rohit Chopra told reporters, "Many of us have raised questions about the student debt domino effect on the economy."

"I don't like to use the word 'crisis,' because it's a 'crisis' that really can't melt down the same way that the mortgage market did," Chopra said on HuffPost Live. "In fact, a lot of the student loan issues are just going to be a drag on the economy, because young people aren't going to be able to participate like a generation ago when they're making very large payments out of their salaries every single month instead of putting it to better use."

The growth in student debt is due to a combination of more students attending college, more parents taking out loans for their children's education and a lack of options to discharge the debt, the fed reports. In 2005, congressional Republicans pushed through a new law that made private student loans nearly impossible to discharge in bankruptcy. While student debt tops all other forms of consumer debt, it's the only kind that cannot be absolved in bankruptcy.

The fed's report comes less than 24 hours before the federal sequester is scheduled to take effect, the automatic budget cuts that will cut off federal financial aid for as many as 280,000 students nationwide.

Source: The Huffington Post

Last Accessed 3/6/2013 at: http://www.huffingtonpost.com/2013/02/28/student-debt-new-york-fed_n_2783103.html?icid=hp_front_top_art

Here's a great article from our student loan law colleague, Joshua Cohen. If you're struggling with your student loans, call our office today! We may be able to help you take control of your loans and get back on track!

Amy E. Sauter

If you’re a Federal Student Loan Borrower, and you haven’t been making payments, be careful before filing your tax return.

One of the collection tools available for defaulted federal student loans is called a Federal Income Tax Return Intercept. Depending on the status of your federal student loan, you may end up losing your tax refund. Best to tread carefully.

If you’re not making payments becuase [sic] you have a deferment or forbearance, do yourself a favor and double check the status of that.

Deferments and forbearances come in 6 and 12-month time spans.  If you don’t know when it ends, make a call to your student loan servicer and verify it is still active.  If it is still active then you have nothing to worry about in terms of filing your taxes.

If, however, the deferment or forbearance ended, you may be in trouble depending on how long ago it ended.  If you only missed a few payments, even as many as 6, you should have time to save your loan from going into default.  Call your servicer and ask how.  If you’ve missed 9 or more payments, your loan is likely in default.

If your loan is in default, you may not get your tax refund due to a Federal Income Tax Return Intercept.

Mechanics Of the Federal Income Tax Return Intercept
Here’s how it works. The U.S. Department of Education sends a note to the Treasury who, upon being told by the IRS to issue a refund check, instead forwards the funds to the U.S. Department of Education to be applied towards your defaulted federal student loan balance.

Getting Income Tax Refunds Back After Intercept
If you file a joint tax return and part of the money is owed to the non-borrowing spouse, he/she can file an IRS form to get their share of the refund back.

You, the borrower, will not get back any refund money taken to pay your defaulted federal student loan. You can avoid future intercepts by rehabilitating your federal student loan and remaining current on payments.

What To Do Instead
Check the status of your loan.  If you’re safe, go ahead and file.

If you’re in default, use this time to take action.  Get your loan out of default, get a payment plan you can afford, and then you can file your tax return.  Can you fix your default before the April 15th deadline?  It is possible, but you may find it less stressful to file an extension until October to research and act on the best method to fix your default.  Do your homework now – it could cost you if you don’t.

Source: Joshua Cohen, Esq.

Often clients don't realize it's possible to pay a mobile home loan in a Chapter 13 bankruptcy.  Many clients are able to pay off their mobile home loans in full during a 3-5 year Chapter 13 bankruptcy plan.  It's also possible to pay what your mobile home is actually worth at the time of filing, and not what you owe on the loan.  This is called "cramming down".

If you are interested in paying off your mobile home in 3-5 years, please contact us to discuss.  Heller & Thyen

Whether to file for bankruptcy protection is not an easy one. Among the numerous concerns, one that is typically front and center is the worry that your credit rating will be so damaged that securing a loan even at a lousy rate will be darn near impossible.

But here's some surprising news: In many cases, the damage done to one's credit score isn't nearly as bad as expected. Over the long run, obtaining a score high enough to make you eligible for very competitive rates isn't out of the question.

Part of the reason why your score isn't likely to suffer all that much is that most folks seriously struggling with debt aren't exactly maintaining a top-notch score to begin with. "In virtually every instance, the consumer will already have repayment problems such as late payments, very high balances, charged-off accounts or collection accounts," says Rod Griffin, a spokesman for Experian, one of the three major credit bureaus. For details on what goes into a credit score, click

In light of this, some consumers may even see a slight boost in their credit scores after filing bankruptcy, according to John Ulzheimer, president of Credit.com Educational Services, a consumer credit education group. Why? To start with, your credit report is largely wiped clean when you declare bankruptcy. Your high balances are removed as are any late payments or records of unpaid debts. Instead, the accounts included in the bankruptcy will be marked as "Included in Chapter 7 Bankruptcy" or "Included in Chapter 13 Wage Earner Plan," depending on which type of bankruptcy you filed. Both types of bankruptcy affect your credit score in the same way, according to Ulzheimer. Granted, you aren't likely to see a big jump but if you've just been scraping by, your score isn't likely to fall much further.

That said, a bankruptcy could help your score over the long term, as well. Here's why: When calculating scores, the formulas developed by Fair Isaac (the company that calculates the most widely used credit score, known as the FICO score) are set up to grade someone's credit standing as compared with that of consumers in a similar financial position. To do that, Fair Isaac divides consumers into 10 groups, using what it calls "score cards." It then ranks the consumers in each group based on the others in the group. One of these score cards is bankruptcy filers. (For competitive reasons, Fair Isaac doesn't release what constitutes all 10 groups.)

In other words, when you file bankruptcy your score is determined based on how you do compared with other bankruptcy filers, explains Fair Isaac spokesman Craig Watts. The reason? Fair Isaac has found this to predict credit risk better. "It's a much fairer comparison," he says. "You're not compared with people with rosy, perfect reports."

As a result, credit scores can run the gamut among bankruptcy filers. "In that population, you'll find some consumers who have very good FICO scores, some who have very bad FICO scores, and in between," Watts says. (Fair Isaac doesn't have statistics on the average FICO score for bankruptcy filers.) Granted, you won't be able to bring your score up to the perfect 850 as long as your bankruptcy stays in your report, but with good credit management after filing, a score in the 700s isn't impossible.

Then again, your credit score alone shouldn't affect whether or not you decide to file bankruptcy. "You have to be realistic about your ability to get back on your feet financially," says credit expert Gerri Detweiler, author of "The Ultimate Credit Handbook." Most experts would still say that if you can dig your way out of debt without declaring bankruptcy, that's a better way to go, since, among other things, you may be forced to sell certain assets in some states even your home or car to meet the bankruptcy filing requirements. (This can be the case with Chapter 7 bankruptcy, but not Chapter 13.) Another issue: Given the tougher new bankruptcy rules, you may not even be able to declare bankruptcy.

That said, if your debt payments are crushing you, bankruptcy will give you a much-needed fresh start. And with a few clever credit repair strategies, your score could be back in the 700s within two or three years. For specifics, see our sidebar.

Bouncing Back

Here's how to raise your credit score as quickly as possible after declaring bankruptcy:

1. Damage control
Make sure all the accounts you included in your bankruptcy are listed as such, and show $0 balances if you filed Chapter 7, says Detweiler. If a creditor continues to report the account as delinquent which they shouldn't your credit score would suffer.

2. Get new credit cards
That's the most important step in your bankruptcy recovery, Detweiler says. If you can't get approved for an unsecured credit card, start out with a secured card. With a secured card, you will make a deposit with the credit-card issuer, which will in essence be your credit limit. Typically, after a year to 18 months of on-time payments, you could "graduate" to a regular, unsecured credit card.

3. Piggyback
If you have a trusted friend or relative, ask them to make you an authorized user on one of their credit cards. Your bankruptcy won't affect your friend's credit, but you'll automatically get the account history for that card in your report.

4. Bigger loans
What about auto loans and mortgages? You can start shopping for auto loans as soon as a few months out of bankruptcy, says Steven Snyder, author of the book "Credit After Bankruptcy." Traditional banks are likely to turn you down, but the financing folks at the dealership may be more lenient, especially if they're in a bind to meet sales quotas. Mortgage lenders will want to see at least two years of good credit behavior, according to Snyder.

Source - Aleksandra Todorova at Smartmoney.com

That is the question asked by Megan McArdle in the linked Atlantic article. Please read it all.

If after you read the article and wonder whether a strategic default would benefit your and your family, or you just want to explore the option further, then give us a call.

One thing to remember, a strategic default can also be done with a second mortgage that is completely underwater.  This option will result in you keeping your home, saving the cost of the the second mortgage, and later putting you in position to settle with the second mortgage company for a fraction of the balance.  We can help you with it.  It usually works in conjunction with a bankruptcy, but a bankruptcy may not even be necessary.