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COLLEGE TUITION CLAWBACKS

Hoosiers struggling with debt often continue to fund college tuition payments for adult children attending a college or university. Unfortunately, if the parents subsequently file bankruptcy, a bankruptcy trustee (“usually a Chapter 7 Trustee”) has the power to try and recover the pre-petition tuition already paid to the college from the parent debtors’ assets. This is called a “clawback”. In Indiana, this can occur within four years of filing under bankruptcy law which incorporates the longer limitations period under Indiana. The goal of the “clawback” is commonly is to recover the tuition payments to a Chapter 7 bankruptcy trustee for distribution to creditors.

RESULTING ISSUES

While there has been a split of results in the underlying bankruptcy courts supporting the parents or Chapter 7 Trustee, recently the 1st Circuit has found that because the parents do not receive a direct economic benefit that was reasonably equivalent to the tuition payments, there is a basis for recovery of the funds. The problems that then arise are (1) Is the tuition liability part of the debts that get distribution from the trustee, (2) Does the college expect to repay the amount taken by the Trustee, (3) If not received already, how does it impact received your degree or transcript?

AVOIDING THE PROBLEM

There are some ways to avoid the issue that are good pointers regardless of whether or not you believe that bankruptcy may be in your future. Generally, the “clawback” only applies to tuition payments made on behalf of adult children. In Indiana, the age of majority is eighteen years of age. Obviously this can be confusing as the date for automatic emancipation is nineteen years of age and federally you can maintain insurance until age 26 for a child. Secondly, it applies to payments from debtors’ non exempt assets (and are not commingled with debtors’s other assets). It appears that signing a PLUS loan is fine as long as the funds are directly paid to the college or deposited into an account at the college that is controlled solely by the student. Courts have found that no transfer of the debtor’s property occurred, and therefore the payment could not be avoided. . Paying tuition from a 529 account or ROTH account is fine as well (again as long as the funds are directly paid to the college or deposited into an account at the college that is controlled solely by the student) from limitations on avoidance powers even before a determination of value.

CONTACT YOUR INDIANA BANKRUPTCY ATTORNEY

This area of law is evolving and you should check with a local bankruptcy attorney about your possible exposure prior to filing bankruptcy if you have paid tuition on behalf of an adult child in the prior four years.

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There isn’t a better time to review a will, trust, or other estate planning documents than the convenient time of holiday gatherings. Wynn at Law, LLC definitely realizes how this could be a delicate or somber talk during what should be fun events. However, the family will appreciate it later when they seek clarity on your intended handling of your assets.
A lot can happen between one year’s holiday celebrations and the next. Some people pass, little ones are added to the family, sometimes relationships change for the better or worse. The value of your assets could change, too – hopefully upward. Your will, trust, insurance policy beneficiaries, gifts, and ownership interests, as a result, could change as well.
Use your best resource
Everyone should consider having an experienced estate planning attorney assist them in drafting or changing these estate planning documents. For example, Wynn at Law, LLC has worked on wills and trusts for single clients and couples in all stages of life, even couples or grandparents seeking to take care of minor children.
Estate planning is a broad, sometimes intimidating term. But it’s simply about caring. You decide how your assets are to be passed on to others. So, estate planning is about generosity first and foremost. It’s also about consideration of your family’s time, as well, because you can avoid questions, fights, and even probate by clarifying your wishes. A third objective also shows your caring and forethought by minimizing state and federal taxes your heirs may face.
Why you won’t delay
Often times, people will think about the changes they will want to make in beneficiaries once they’ve been reminded by seeing everyone over the dinners and celebrations. They are the clients who make appointments for January.
But, it’s very easy to sit down with an attorney before and during the holidays because the family is gathered near. Sometimes signatures might be required. A Power of Attorney might need to be appointed or changed. Is there a better time than when loved ones are gathered together? Ensure your loved ones are taken care of in the future this holiday season.
 
Elena Shashkina image, used with permission
The post Practice good estate planning during holiday gatherings appeared first on Wynn at Law, LLC.

Online Installment Loans Have Crippling Interest Rates
Because of scams payday loans are on the way out, but installment loans have taken their place
Payday loans usually have a very short period to repay – typically a lump sum payment in a few weeks. The interest rates are sometimes upwards of 700-800%.  Many times the borrower has to take out another loan to pay the original, and this goes on for years.  Regulators put payday loans on their radar and many investors are finding their way into prison or bankruptcy.  Fast forward to installment loans.  Currently borrowers without pristine credit owe approximately $50 billion in installment loans. 

Installment loans are a cash cow for creditors, but a devastating cost to borrowers,” said Margot Saunders, senior counsel for the National Consumer Law Center, a nonprofit advocacy group.

Payday loans under heavy scrutiny
For the last several years there have been monthly articles and news stories about the horrific problems with payday loans.  As with all things legal, the problem started small and then grew.  One greedy, unscrupulous lender taught another, who taught another, etc.  Years past and the actions (just like bullies) get more and more outrageous, until everyone knows about the problem.  Eventually, the legal system sits up and pays attention.  Federal and state agencies, federal and state Attorney General’s, and others start to critically analyze the problem.  By the time these folks get involved the general public has suffered serious and crippling consequences (think of the gangs taking over your neighborhood).  Finally, years later, the power that be start to clamp down on the bad actors – lawsuits, fines & penalties, prison sentences, new laws come into being.
The payday lenders must find another way to to make their millions – enter installment loans.  The installment lenders (really the payday lenders by another name) very quickly these “hard money” lenders became so popular that the bulk of their revenue came from installment loans rather than payday loans.
Who is borrowing installment loans?
Installment loan borrowers (like payday borrowers) are usually people who are gambling that their financial situation will get better if only they can find a little more money.  Unlike payday loan borrowers (who have very poor credit), typically those borrowing installment loans don’t have terrible credit, but they also do not have great credit – so we are talking about ‘middle class America’.  According to data from Experian, 45% have annual income over $40,000, 15% between $50,000 to $60,000 and 13% over $60,000.
Interest rates in the triple digits
Many states have caps on interest rates, but may only apply to smaller loans (California and Virginia – loans below $2,500).  Until the legislation catches up with the current market there are few laws governing larger loans.  So, it is not unusual to see company companies charging interest between 34% and 155%

MUSINGS FROM DIANE:
Too many times we respond to stress without thinking about the future consequences.  A co-worker does something rude and we lash out, resulting in a reprimand or perhaps losing our job.  We withhold rent because a landlord refuses to fix a problem, resulting in an eviction.  A homeowner’s association issues a fine for not cleaning up the front yard, resulting in assessments, attorneys fees and ultimately a foreclosure of our home.

In life, the most difficult planning has to do with finances.  We use the rent money to buy the latest phone or ignore that weird banging of our vehicle.  What happens?  We cannot pay the rent and are evicted; or our vehicle craps out, we lose our job because we cannot get to work.

One class missing from school – finances.  Unless your parents taught you how to handle money, then the only way you will learn is by trial and error.  Unfortunately, many errors can be serious.  Always do your homework before borrowing money.  Will your income be enough to cover the new debt?  If not, don’t borrow the money.  Instead, look for another option.

How Can I Help You?
The post How Terrible is an Online Installment Loan? appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.

Many Borrowers are Trapped by Vehicle Loans
Vehicle defaults is the next financial crisis (after the mortgage crisis)
According to the Wall Street Journal 33% of vehicle loans are upside down (meaning the vehicle is worth less than the debt).  Borrowers trade-in vehicles with existing loans, finance a new vehicle and carry over the debt from the old vehicle.  This results in a vehicle worth significantly less than the secured debt – sometimes as much as 100% less.  This trend is continuing to rise, from 19% 10 years ago, to 33% today.
If this continues at the current rate, within just a few years 50% or more of all vehicles on the road will be worth less than the debt.
Dealerships encourage irrational financing
The dealerships encourage this insane financing scheme because they make more money.  Vehicles are being designed to die within a few years, many less than the length of the loan. The borrowers are trapped.  The only way out is to pay the entire loan and not finance another vehicle until it is paid in full.  That is extremely difficult because many loans are for 7 years or longer (long past the life of many vehicles).
Most lenders offering underwater loans have extremely high interest rates
Once a borrower falls in default and tries to refinance they may find the only lenders willing to finance a new loan is a ‘sub-prime’ lender.  These lenders are aware the borrower has financial difficulties and they don’t care (in fact, they make more money because of the default).  Borrowers ask the lender for help, but they are turned away every time.  Some lenders will offer to refinance (again), but this time at even higher interest rates.
Many lenders want the borrowers to default because they can raise the interest rates, charge penalties, or offer another loan at higher terms.  Or they repossess the vehicle and sell it to another naive’ borrower who cannot afford the loan.
Defaults can lead directly to unemployment, eviction and homelessness
Sub-prime loans are outrageously expensive, which leads to more and more defaults.  This takes a borrower, who could barely afford to pay their bills, into a guaranteed downward spiral.  Default on a vehicle loan results in the repossession the vehicle and a guaranteed lawsuit.  A lawsuit results in garnished wages.  Garnished wages result in more defaults.  More defaults result in eviction.  Evictions result in homelessness.  Homelessness results in unemployment.
Repossessed vehicles and deficiencies
When a lender is not paid they will repossess the vehicle, sell it at an auction (for far under the true value of the vehicle – many times to their own dealership) and then sue the borrower for the difference (referred to as a deficiency).  The lender then garnishes the borrower’s wages and bank accounts, which pushes the borrower even deeper into financial crisis.
Bankruptcy may be the only way out of this insanity
I would be out of a job if lenders used common sense in making loans and working with their borrowers facing financial problems.  There are times that bankruptcy is the only option for someone to start their life over.  Yes, you can finance a vehicle after filing for bankruptcy (sometimes for better rates than before bankruptcy).  Talk to an experienced bankruptcy attorney in order to determine your rights and obligations.

MUSINGS FROM DIANE:
Who is at fault?  Everyone – the manufacturer, the dealership, the lender and the borrower.

Many vehicles are designed with short life spans, many less than the length of standard financing.  A manufacturer’s goal is to sell as many vehicles as possible, so quality rarely a consideration.  The average worker does not have the ability to pay cash for a vehicle and is left with options of financing at high interest rates or riding the bus.  In many areas a vehicle is an absolute necessity in order to keep a job.

I am not advocating giving a free vehicle to anyone (unless you want to). But, how about using some restraint when either buying or selling a vehicle?  If you are buying a vehicle that has a life span of 3-5 years then you are an idiot to finance it for 7 years.  If you are a lender then why is it necessary (other than pure greed) to charge outrageous interest or terms?  When the vehicle is repossessed and sold at auction, why isn’t it the obligation of the lender to get the best price possible?

How Can I Help You?
The post Borrowers Trapped – Defaults on vehicle loans increasing appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.