Bankruptcy Relief in Sight for Private Student Loan Debtors?

Since the decline in the economy, a staggering number of Americans have returned to school to better their employment prospects.   Regrettably, many of these students enroll in private for-profit schools and end up with a mountain of debt they can never hope to repay.  Exceedingly too many students have little to show in the way of credentials or skills for all their hard work.  Students are often forced into private student loans to fund their education.  Sky-high interest rates on private loans and fewer relief options for consumers like hardship deferments have left borrowers with little choice but to default.  Currently there is no relief for these debtors.   These loans and bad credit history can follow students for life.  Even bankruptcy doesn’t offer a fresh start.   

A bill was recently introduced that would allow private student loans to be discharged through bankruptcy.  The Private Student Loan Bankruptcy Fairness Act of 2011 was introduced to Congress May 26, 2011, by Representative Steve Cohen, Democrat of Tennessee and Senator Dick Durbin, Democrat of Illinois.  The act seeks to amend the federal bankruptcy code to remove qualified educational loans as an exception to discharge from bankruptcy.  Most private student loans were dischargeable through bankruptcy before Congress changed the law in 2005.  The Bankruptcy Abuse Prevention and Consumer Protection Act was signed into law by then President George W. Bush, this current law treats private students loans the same as federal or non-profit loans which are non-dischargeable through bankruptcy.

The current law provides no relief for debtors faced with overwhelming private student loan debt.  While, the country has a compelling interest in making it extremely difficult to evade payments for federal or non-profit debt, there is no reason to extend that protection to private student loan lenders.  High-cost private loan lenders, who often turn an enormous profit, have been given an unfair advantage over other unsecured lenders such as credit card issuers whose debts are still subject to discharge in bankruptcy.  The law change in 2005, no doubt, brought about careless lending by underwriters who no longer felt obligated to determine the borrower’s ability to pay.  Student loan debtors are now struggling to repay these pricey private loans with no chance for relief.

If the Private Student Loan Bankruptcy Fairness Act of 2011 is enacted into law, it would eliminate the undeserved protections for private student loan lenders and give struggling borrowers the possibility of a fresh start.  To show your support for H.R. 2028: Private Student Loan Bankruptcy Fairness Act of 2011 go to:  https://www.popvox.com/bills/us/112/hr2028     

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.

Federal Rule Protects Exempt Bank Funds from Garnishment

On May 1, 2011, a new federal rule went into effect.  The new rule increases protection for exempt funds in a garnished bank account.  It had become commonplace for banks, upon receiving a garnishment order from a judgment creditor to freeze the account of the judgment debtor without regard to whether the account contained exempt federal funds such as Social Security.  The result of this practice left many retirees with no income and unable to meet their basic needs.  Under the new Treasury Department rule, an electronic tag will be added to automatic deposits from government agencies.  These funds include, Social Security, Supplemental Security Income (“SSI”), Veteran’s Administration benefits (“VA”), federal Railroad Retirement, federal Railroad Unemployment and Sickness benefits, federal Civil Service Retirement benefits and federal Employee Retirement System benefits.  The rule does not apply to military retirement or state issued benefits.   

Banks must now exempt all tagged deposits made during the previous 60 days and protect those deposits from garnishment.  The account holder must have access to the sum of the deposits made within the last 60 days or to the current balance, whichever is lower.  Even if there is exempt money co-mingled with non-exempt money, banks will not be held liable to creditors for refusing to garnish the tagged funds.  Garnishment orders obtained by the United States are not covered by this regulation.

While the new rule is a step in the right direction there are gaps in its coverage.  Setoffs are not covered by the new rule.  This means that a financial institution can still obtain these “exempt” funds to set off overdrafts and other debts owed to the financial institution such as credit card debt.  The rule also does not apply to bank fees.  The 60 day look-back period is being criticized as well.  In some instances when there are 31 days in a month, only one month’s worth of benefits will be protected.

Garnishment orders affect more than 1 million people each year according to the National Consumer Law Center.  Many of these people are often elderly and on a fixed income.  A frozen bank account can cause these people significant hardship forcing them to go without needed medicine or food.  This new rule is just one of many powerful consumer protection laws currently in effect designed to help people in need.  The new rule applies to all federally chartered federal and state banks and credit unions.  Exempt funds must be electronically deposited to be tagged as exempt.  Deposits made by paper checks are still exempt, but the bank is not obligated to identify these funds or protect them from garnishment. 

  

The interim final rule may be reviewed at http://edocket.access.gpo.gov/2011/pdf/2011-3782.pdf.  Guidelines issued by the Department of the Treasury, Financial Management Services, may be accessed at www.fms.treas.gov/greenbook/guidelines_garnish0311.pdf.

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us as www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.