Qualify faster for public service student loan forgiveness by buying back months where payments were skipped

By doug | Published: October 18, 2023

In October 2023, the Department of education has come out with a new wrinkle that may help a few borrowers who
have been waiting for Public Service Loan Forgiveness (PSLF) for their student loans. Broadly, PSLF wipes out
student loan balances for borrowers who have done full time work for a non-profit employer for a total of ten years
(that is, 120 months).

Borrowers who are getting close to the 120 month threshold may now buy back months in which they were ruled
ineligible due to a deferment or a forbearance, and qualify for immediate forgiveness.

For instance, a borrower with 118 months of qualifying service time, but whose loans were in deferment for three (3)
months during the payback period can now make a one-time payment equal to 2 loan payments and get immediate
forgiveness of the remaining balance.

Of course, as with most student loan programs, there’s oodles of paperwork and complications involved. To start with,
you need to have a Direct federal loan with a positive balance, 120 or more months of payments while certified as
working for a qualified non-profit employer (including months where no payment was made due to deferment or
forbearance, and at least one month where their was a deferment or forbearance.

BUT, you won’t qualify for this if you still fall sort of the 120 total months requirement, or have only non-direct
loans such as FFEL or Perkins loans. It may also be tough to qualify if you have already consolidated your loans;
deferment months that occurred when the original loans were in place can’t be bought back.

Also, months where you were in school, in a grace period, in default, in bankruptcy, or being monitored for a
disability claim don’t count.

If you apply for the buy back program and are accepted, the DOE will ask you to sign a buy back agreement, calculate
the amount due, and give you ninety (90) days to make the payment. Do that, and the forgivness should be automatic.

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Is there any way to reduce super high Parent PLUS loan payments?

By doug | Published: October 12, 2023

Paying off student loan debt can be plenty challenging enough when you are trying to finance your
own education; but parents who borrow to help put their children through school are in a whole other
league when it comes to repaying the loans.

That’s partially due to the fact that parents are usually in a different stage of life when they take
on this kind of vicarious student debt. Think about it: the parent borrower will almost always be in his or her forties when they sign up for parent loans, and with many extended repayment plans may be well past retirement age before they finish paying them off.

Adding to this, the most popular form of parent lending for education, Parent PLUS loans, have no formal maximum limit on the amount that can be borrowed, parent may feel responsible for helping multiple children, and some of those children may be seeking advanced degrees that take a decade or more to obtain. It can quickly add up to a whopping debt that, while incurred for a noble cause, overwhelms the parents just when they are eyeing retirement.

Since Parent PLUS loans are federal loans, the first instinct borrowers have is to shop around for one of the several income-based repayment plans offered by the federal government. Unfortunately, the news here is bad: Parent PLUS loans (unlike PLUS loans offered directly to graduate students) are formally barred from all these repayment plans except one.

The sole relief program that will accept Parent PLUS loans is called Income Contingent Repayment, or ICR. Unfortunately, this is one of the oldest programs out there, and requires borrowers to commit 20% of their disposable income each month to debt payment. This may be a viable option for one or two small loans, but can produce staggering payments for parents who leaned heavily on these loans for their kid’s schooling. The newest, and usually friendliest repayment plan, dubbed SAVE, formally bars parents from enrolling their PLUS loans.

But — there may be a workaround, although it requires tenacity and a daunting amount of paperwork. While Parent PLUSloans are ineligible for SAVE and other plans, “direct” federal student loans are eligible, so the trick is to turn a PLUS loan into a direct loan in order to qualify.

Enter the “double consolidation,” in which parent debtors put their PLUS debts through a series of debt consolidations to get them converted into direct loans. Here’s how it works:

Campus photographs taken by Freelancer Conor Doherty during a summer day.


First, parents need to have multiple PLUS loans. A single loan is stuck with ICR. But multiiple loans
(which should be the case if the child attended school for more than one year), can be divided into two groups of loans, each one ripe for consolidation.

Because parents can choose their loan servicer on the consolidation application, they will begin by filling out the forms and requesting the first group of loans be consolidated into one direct loan, and then
choosing a servicer such as Nelnet.

A second application is simultaneously prepared, listing the remaining PLUS loans for consolidation, and a DIFFERENT servicer is requested.

When both consolidation applications are submitted and approved, the result should be that the parent now owes on two direct federal loans, payable to two different servicers. While these loans are direct federal loans, they still carry the PLUS designation, so an additional step is needed.

You guessed it: the borrower next prepares a third consolidation application, this time asking that the two new loans be combined into one, and chooses the ultimate servicer of choice. If the parent thinks they might
be a good candidate for public service loan forgiveness based on their employment status, MOHELA should be selected.

When this last application is submitted and approved, the result should be one single direct federal loan, created from the merger of two direct loans, eliminating the Parent PLUS status, and qualifying for a lower payment under the SAVE program. At this point, the SAVE application can be downloaded, and the final single direct loan can be enrolled.

Obviously, it helps to be the type of person who just loves government bureaucracy and filling out forms to pull this off, along with a healthy dose of patience, but the end result may be worth it, as payments calculated by SAVE will tend to be much lower than those offered by ICR.

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You still might not have to pay student loans

By doug | Published: July 11, 2023

With federal student loan forgiveness scrapped by the Supreme Court, beginning around September, 2023 millions of Americans will have to start making Federal student loan payments again. But if your annual income is below a certain level, and you are accepted into an income – contingent repayment plan, monthly payments will still be nada, nil, zero.

The income protection threshold for the income-contingent repayment (ICR) plan in 2023 is $51,055. This means that if your adjusted gross income (AGI) is below this amount, you will not have to make any payments on your student loans under the ICR plan. If your AGI is above this amount, your monthly payment will be calculated based on your income and family size.

Note that the initial determination is made by reference to the graduate’s income level, not a spouse, parent, etc. It’s only if the graduate’s income is above $51k that family income and size is considered.

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Use caution when claiming marital deductions on the means test

By doug | Published: July 10, 2023

High income debtors who wish to file a Chapter 7 bankruptcy case to discharge unsecured debts face a serious hurdle in the bankruptcy code’s means test, which gauges their income level, and compares it with a laundry list of average monthly expenses to see is the filer qualifies or not.

Married debtors are allowed an extra deduction on the means test for a non-filing spouse’s monthly expenses that are exclusive to him or her. This so-called marital adjustment was the focus of a recent Massachusetts case that probes the bounds of exactly what qualifies for as a legitimate marital expense for means test purposes.

In the Tapply case, the debtor claimed three monthly bills paid by his wife as a marital adjustment, which were challenged by the United States Trustee’s office. These were college tuition payments for the couple’s son, dance lessons for their daughter, and credit card payments for cards that were issued in the wife’s name only.

The debtor’s argument was that these expenses were all paid for exclusively by the wife from accounts over which he had no control, and that because they were likely to continue into the future, they should be deductible as future monthly bills. The trustee argued that college tuition and dance lessons were just a form of household expenses and were already accounted for (on a different line) in the means test calculation. He went on to claim that the debtor did not submit enough evidence to show how the wife’s credit card payments were for items that did not constitute household expenses.

Massachusetts bankruptcy judge Elizabeth Katz sided with the trustee, disallowing each of the claimed expenses and dismissing the debtor’s bankruptcy case.

College tuition and private school payments have been a hot potato in bankruptcy court lately, vulnerable to the argument that since they benefit the student rather than the debtor, they deprive other creditors of payments that are rightfully theirs. Here, Judge Katz found that the college tuition payments essentially belonged to both spouses even though they were paid exclusively by the wife, and therefore did fall into the category of household expenses. The same reasoning was applied to the daughter’s dance lessons, and both deductions were disallowed.

The issue concerning the wife’s credit card payments ended up being a matter of proof, rather than an absolute no-no. The debtor needed to show that the items bought on the wife’s card were purely personal to her, otherwise they would be assumed to be ordinary household expenses already accounted for. The judge ruled that the debtor did not provide enough information oil court to prove this, and so that deduction was disallowed too.

The message this case gives to future debtors can be summarized as ‘come into court well-prepared.” Printed statements and payment histories for credit card payments should be close at hand to show both trustee and judge that your deductions are legitimate.

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In bankruptcy court, what exactly is a consumer debt?

By admin | Published: July 7, 2023

Since 2005, persons who wish to file a Chapter 7 bankruptcy case need to qualify first, passing a means test that compares their recent income to the average income and expenses in the area where they live. This means test applies to all Chapter 7 cases of individuals that involve primarily consumer debts.

This begs the question: what exactly is consumer debt?

While credit card purchases would be an obvious slam-dunk example, a bankruptcy appellate panel of the First Circuit court of appeals dived into some of the thornier issues and close calls involving the definition of consumer debt in the appeal of Ada Conde – Vidal.

(Bankruptcy appellate panels are groups of three bankruptcy judges that decide contested appeals of rulings from a bankruptcy court).

The Conde – Vidal case involved a dispute between two neighbors in a condo building in Mirimar, Puerto Rico concerning noisy pets. A lawsuit in the local court resulted in a court order that Ms. Conde _ Vidal was to pay the attorney fees of the lawyer for the neighbor that was suing her. Meanwhile, her wife filed for Chapter 13 bankruptcy. Conde – Vidal could have joined her filing and made it a joint case with two married debtors, but she did not.

Instead, Conde – Vidal decided to rely on the “co-debtor stay” provisions of the bankruptcy code to protect her from collection activity by her neighbor’s attorneys. The co-debtor stay is a special clause in Chapter 13 cases that extends some bankruptcy relief to co-signers as well as the primary debtor in the case.

The catch: a co-debtor stay, like the means test, applies only to cases that involve primarily consumer debt.

The First Circuit B.A.P. found however, that attorney’s fees imposed by a court order did not count as consumer debts. The reasoning is that the hallmark of a true consumer debt is that it is voluntarily entered into by the debtor. In this case, the bill for legal fees was imposed against Conde – Vidal and her spouse over their objections in court, so the debt was deemed not voluntary, and therefore, not a consumer debt. Collections activity against Conde – Vidal as a co-debtor were therefore allowed to continue.

This case points to the next big issue that is likely to arise in this legal area: medical debts. Are they consumer debts or not? On the one hand, most people voluntarily seek medical help from a doctor or hospital when they need to. On the other, few people voluntarily wish to be sick or injured; it happens, then they seek help.

For the resolution of this issue in the bankruptcy courts of the First Circuit, we will have to stay tuned.

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Can a dead person claim a homestead exemption?

By admin | Published: June 20, 2023

The quick answer is no. But a recent case in Massachusetts involved some twists and turns on this point.

In the Mbarzira case, the debtor died in the middle of the bankruptcy proceedings. There is nothing controversial there; when that happens, the bankruptcy code is crystal clear that a chapter 7 case continues despite the debtor’s death, much like a probate case can distribute property post-mortem.

However, the usual rule in bankruptcy is that exemptions are fixed upon the filing date of the case, and are usually immune to what happens afterward, wrote Massachusetts bankruptcy judge Christopher Panos, adding that this rule should rarely be violated. Therefore, the death of the debtor was not a bar to claiming an exemption on her homestead.

But that didn’t mean that her heirs got a chance to touch the proceeds from the sale of the home, which was sold in an auction ordered by the bankruptcy court. Since the property was sold, all that was left was a mortgage, and there was nothing for the homestead exemption to attach to. So the bankruptcy trustee was allowed to keep the proceeds, and use the money to pay off the dead woman’s creditors.

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Debtor can’t remove lien on house because it was her husband’s debt

By admin | Published: May 15, 2023

Can a bankruptcy debtor get rid of a lien on the house she owns wither husband, if the lien is tied to a debt incurred only in the husband’s name? No, says Massachusetts bankruptcy judge Janet Bostwick in the Hector case.

There, the wife re-opened her Chapter 7 bankruptcy when she learned that a lien had been placed on the property for an old gas bill. But the utility bill was issued only in her husband’s name. However, since it affected jointly held property (the couple’s house), she reasoned that it could be “avoided” (that is, eliminated) by filing a simple motion in the case once it was re-opened.

No dice said Judge Bostwick: in Massachusetts and most other places married couples can contract debts in their individual names as well as together, and individual debts are the sole responsibility of the spouse who is named. There is no legal obligation of the other spouse to pay such a debt, so the gas bill did not really impact her. Because of this the lien was ruled to apply only to the husband’s interest in the property, and since he didn’t file for bankruptcy, the wife could not wipe it out in her own case.

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Working for a marijuana business could cost you your right to file bankruptcy

By admin | Published: May 3, 2023

Since the rise of marijuana legalization in various parts of the United States, it has been universally held that newly minted “pot shops,” should they fall on hard times or go out of business, cannot seek corporate bankruptcy relief. Bankruptcy court is federal court, and federal courts reading federal laws still consider cannabis to be a banned substance, the sale of which often involves criminal penalties. Likewise, dispensaries usually won’t accept credit cards, since those are issued by banks, which must have a federal charter, making nearly all banks fearful of getting involved.

But what about individual bankruptcy cases, sought by flesh and blood human beings with a boatloads of bills to pay? In a recent Massachusetts ruling, an employee of a Massachusetts cannabis operation was kicked out of bankruptcy court as well, just because the company he worked for was peddling the evil weed.

The case concerned a Chapter 13 plan filed by a couple in the bankruptcy court in Worcester. At the time the case was filed, the husband was a budtender at a local dispensary; several months into the case, he had switched jobs and was working as a manager with a separate firm.

While acknowledging the tension between Massachusetts laws (recently changed to allow retail sales of pot to recreational users), and federal law (where marijuana remains a schedule I controlled substance), Massachusetts bankruptcy judge Elizabeth Katz came down hard on the debtor. Judge Katz found that the debtor was essentially in constant violation of federal law, committing federal crimes perpetually (his managerial duties included procuring weed for sale, overseeing retail operations, and filling in for absent salespeople).

According to Katz, this amounted to a “lack of good faith” that precluded the proposed Chapter 13 plan from confirmation. Furthermore, since the debtors’ payments into the plan were to come mostly from the husband’s wages, the court found that a plan could never be confirmed with what the feds consider tainted money.

Moreover, even a last ditch attempt to save the plan by switching to payments from the wife’s retirement funds was not enough to carry the day, as the husband continued to engage in, and derive benefits from, activities that the court thought violated federal criminal law.

If bankruptcy courts nationwide are inclined to follow Judge katz’ lead, marijuana industry employees may often find themselves in teh same boat as their employers when hard times come knocking; shut out of bankruptcy court due to a federal / state legal conflict over which they have no control.

The case is In re Blumsack, no. 21-40248.

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Median income figures for bankruptcy means test were revised in 2020

By doug | Published: May 1, 2020

The United States Trustee has issued an increase in the median family income used for completing Bankruptcy Forms 122A-1 and 122C-1. The increase is based on consumer price index adjustments and is effective as of today, April 1, 2020. The new table is available here.

Median income is used to determine eligibility for Chapter 7 bankruptcy. Debtors with incomes above the median can still qualify in many circumstances; there are separate (and fairly complicated) equations to work out to determine if an over-median debtor can still file a Chapter 7 case. Better call a bankruptcy lawyer….

To give you an idea, the median income level for a single person living alone is $67,119 in Massachusetts and $66,585 in New Hampshire.

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Double vision: can a debtor have two bankruptcy cases going on at the same time?

By doug | Published: April 30, 2020

Most people don’t even want to file one bankruptcy case. Why on earth would anyone want to be involved in two (or even more) cases simultaneously?

Usually the answer involves a debtor’s desperate attempt to stop a foreclosure auction so they can hang on to their home. Or, from the lender’s point of view, a desperate attempt to foreclose on the property and pit an end to a losing situation.

Sometimes debtors will file a second case before a scheduled auction hoping that an automatic stay will go in to effect with the new case, and prevent the auctioneer’s hammer from falling. Is this legal or allowable?

Well, from an analytical point of view, there are a lot of problems. Chief among them concerns the notion of property of the estate.

When any bankruptcy case is filed, all of the debtor’s property (or almost all) becomes part of a bankruptcy estate, which will be administered by a bankruptcy trustee. It is similar in concept to the idea of an estate being created when a person dies.

The main conceptual problem becomes how can one set of property be part of two simultaneous bankruptcy estates, which are now to be separately administered, possibly by two different trustees? To a bankruptcy lawyer this is a mind-blowing concept akin to a astronomer pondering multiple universes.

It is probably safe to say that this won’t fly before most bankruptcy judges, but never say never. In a recent Pennsylvania case, In re Wilkinson, the married debtors were excused for filing overlapping Chapter 13 cases.

During the first Wilkinson bankruptcy, their mortgage holder filed for relief from the automatic stay, indicating a desire to resume foreclosure proceedings despite the bankruptcy. No opposition was filed by the Wilkinson’s attorney, so the motion was granted.

Later, a new bankruptcy case was filed by a second attorney on the eve of the foreclosure to stop the sale from going through. The next day, the debtor’s first attorney filed a motion dismissing the first case. So there were two bankruptcy estates going on at the same time for about a day.

In this situation, where there was more than one attorney involved (and a hint that the first attorney may have been unable or unwilling to advance her client’s cause), Pennsylvania bankruptcy judge Henry Van Eck was willing to look the other way, ruling that it was not necessarily bad faith to file two cases with a slight overlap.

Debtors contemplating a similar move should be prepared to face hostility, however. In a similar situation, New Hampshire bankruptcy judge Bruce Harwood found that the debtors in the unpublished Jordan case were acting in bad faith by filing two Chapter 7 cases, converting one of them to a Chapter 13, and trying to avoid auction that way. Judge Harwood ruled the debtors were manipulating the system, and would lose their house, although he stepped back from deciding the big issue of whether two cases can coexist at all in the bankruptcy world.

The takeaway is that lawyers should try everything they can before creating overlapping bankruptcy estates.

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