|Katherine:||Hello everyone. Thank you so much for joining us today on This Needs To Be Said. Our friend, attorney, Ron Drescher, is here today talking with us about something, I think that you want to make sure you have your pen and paper out. This is a show that you want to definitely pay attention to. This conversation is one that is, I believe, almost unheard of, when we talk about student loans and bankruptcy.|
Hey Ron, how are you today?
|Ron Drescher:||I’m great. How are you doing?|
|Katherine:||I’m doing good and I’m excited about your topic because this can help so many people. And this is just on me paying attention to the world around me. Student debt is going up. People aren’t being able to get jobs with the degrees that they’ve gotten debt for. And it’s overwhelm. So I’m just excited that you have some good news for people.|
|Ron Drescher:||Well, don’t get too excited.|
|Ron Drescher:||The news isn’t that good, All right?|
|Ron Drescher:||But it is worth paying attention to. And that is that when I sit down with a client and we go through their… The different kinds of debt, credit card debt, personal loans, car debt, repos, taxes. We talk about student loan debt, and they say, “Well I know that student loans, you can’t do anything about them in bankruptcy.” And I would say for a solid 85% of the people that I sit down with, that’s true. You really can’t do much about them in bankruptcy.|
But there’s still that other 15%, and you know what, that’s a lot of people, who I think you can do something to help them if they’ve got oppressive student loan debt. And to get out from under student loans in bankruptcy, you’ve got to prove three things.
|Ron Drescher:||The first thing you got to prove is that, if you’re going to be required to pay these student loans back, it’s going to force you under a minimum standard of living.|
|Ron Drescher:||Okay? So you’ve got to prove that.|
|Ron Drescher:||Then you’ve got prove that, that situation, that circumstance is likely to continue for the foreseeable future. The last thing you got to show is that you’ve made a good faith effort to pay on the student loans.|
|Ron Drescher:||So we’re going to unpack these three requirements a little bit, so that you get a little bit a real world concept of it.|
|Katherine:||Well, I’m ready.|
|Ron Drescher:||When you’re talking about requiring the payments to set you below a minimum standard, that’s become difficult regarding federal student loans, because there are so many income-based repayment programs out there. And you know for example, if you’re making nothing, let’s say you’re going to go through a fairly extended period of unemployment, you don’t want to go on deferment, you don’t want to go on forbearance, you want to go on an income-based repayment program and show that you’re making zero dollars, because then you’ll repay zero dollars.|
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|Ron Drescher:||So it’s tough to show on a federal loan that you satisfied that first requirement. But there’s still a lot of private student loans out there, and the private student loans tend to be a lot more difficult to deal with than the federal student loans, and they don’t have these income-based repayment programs. So that’s kind of how the first one looks.|
And as far as is it going to make you dip below a minimum standard of living? You put together a budget and you know you add up your rent, or your house payment. Typically your rent, food, you got to have a car, you’re entitled to have cable and internet, you’ve got to have insurance, you’ve got to pay utilities. You go to through all of these, and that’s a necessary exercise to determine if you satisfy that first requirement.
|Ron Drescher:||The second requirement is very interesting because some lawyers think that you’ve basically got to be disabled, and your life has to be hopelessly impoverished in order to satisfy that second requirement. But the cases really don’t say that. Cases are all over the place on this, so you never quite can be sure about what you’re going to get when you go into bankruptcy or if you decide to go down this road.|
I’m handling a case now, where a woman has worked for a candy company for 30 years, and she is just not going to be making much more money than she’s making now. There’s no evidence that she will, and the evidence is actually to the contrary. I felt that she’s got a pretty strong case and that’s why we agreed to file it. But I don’t think you have to prove hopelessness, but you do have to prove that it’s just you know doesn’t look like it’s going to get any better.
|Ron Drescher:||And an otherwise good student loan discharge case can’t go forward because I can’t prove that they’ve made any efforts to repay.|
|Katherine:||What about if a person wasn’t in default or maybe it’s the same thing. But if they’re in deferment or forbearance, you mentioned that earlier. So what if they get to number three on what has to be checked off, and they’ve been in deferment?|
|Ron Drescher:||You know there is at least one case out there that basically says, as long as you’ve been talking to the servicer responsibly, that shows a good faith effort to repay.|
|Katherine:||Okay, okay. I will be surprised with how many people are in default that come to you, who don’t take that step of deferment, at least to protect themselves for a little bit, in my opinion. And I’m not the attorney, I’m the host of the show, so remember that people as you’re listening, listen to Ron. I’m just talking with him.|
But I am surprised that people would come to you with the default as opposed to a deferment, so I wanted to ask that question, not to get you off track, but I was curious.
|Ron Drescher:||It’s all right. It does come up with some frequency.|
|Ron Drescher:||So those are the three factors that you have to prove in order to discharge student loans in bankruptcy, and it’s tough because the language of the statute says that you can’t discharge student loans unless requiring the clients to repay them would cause an undue hardship. So you have to show that extra level of hardship, and that’s what the courts have fashioned.|
Now every year or so, I do a survey of the top student loan discharge cases that are being litigated, to see if there has been kind of any loosening of the standards. And the short answer is in the states and in the jurisdictions where you would expect there might be some loosening, there has been. And in the states and jurisdictions where you think, “Wow, there probably hasn’t been some loosening,” there hasn’t been.
So I’ll leave it up to your listeners to kind of try to decide which those are. But I guess what I would say is the states that are more predominantly urban, you’re going to see more leeway and more flexibility that the courts will apply in deciding whether or not a student loan debt should be discharged.
|Katherine:||Why is that?|
|Ron Drescher:||I just think it’s the overall perspective on the nature of debt. I think it’s a broad social political question.|
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|Katherine:||I was hoping you weren’t going to say that, but I kind of figured that because it sounds like with what you’re talking about here, is some broad strokes, where you are not really sure if a person… Like you’d have to… People, you would have to call Ron, so he can look at your situation individually. Because it doesn’t seem like anybody has any one way, and this is not just with student loans. They don’t have any one way to describe what does this look like, or how can this fit. And maybe it’s because the assumption is the more urban the area, the more impoverished the people are in that area, but education is supposed to help you come out of that.|
So this is like… I’m glad you’re researching it. This is crazy. You know, like wow.
|Ron Drescher:||It is crazy that we have these situations. But I want to talk to you about a different strategy that I have employed for some clients, and it’s a Band-Aid. It’s not surgery, it’s a Band-Aid.|
|Ron Drescher:||I call it a perpetual chapter 13, and the way it goes, let’s say you have zero chance at discharging your student loan debt, and let’s say it’s a private student loan. Because if it was a federal student loan, they have these great programs where you can consolidate the debt into an income-based repayment, get yourself out of default, and at least limp along with a payment that’s based upon your family size, and your adjusted gross income that appears on your tax returns.|
So this typically comes up much more in private student loans, and what we have done is file a chapter 13 for my clients, that will last for five years, and just put off repaying the student loans. Just put it off for five years. And unfortunately five years go by in a hurry. But at least during those five years, my clients are getting some relief. And with the thought of, “Well when I get out of the bankruptcy in five years, I’ll see where I am. I’ll see if the lender is a little bit more flexible at that point, having gone without any payments for five years. And see if it’s a thing that I can do.”
I’ve got a few clients in the chapter 13 program. I can’t say that it’s a great program, but if your wages are being garnished for non-dischargeable debt and you need to get some relief, it’s an option.
|Katherine:||Yeah. And as I’m listening to you, time does fly. If you have kids, it goes fast for sure. But just thinking about when we have to make these decisions because we have life happening, and yes, when you went to school, the intent was to improve your situation, not to have to figure out how to discharge it, or how to have enough money to pay it, or will you be paying it until you’re dead. That’s not a thought that we have. That’s not in your plan when you’re writing it down to make life better.|
But now that we’re here in this space and you’ve gotten loans, your children have gotten loans, this is education that you need on how to re-look at. I’m saying re-look at, look at again, look at your life again, and say, “Okay now this is what I was trying to do but here’s where we are now, and what can I do?” And Ron, I’m just like, “Wow.” Because it sounds like a hard decision for a person to have to make. Yes, I’m filing chapter 13, it does give me a little bit of a break. But with your guidance it sounds like, “Okay I know the next thing to do.” Because as you were talking I was thinking, “Man, somebody might forget.” But you know we have to be responsible somehow. You can’t do it all for us Ron, but you’re giving us the next steps. Now after you finished with this, the next thing to look at, to re approach will be, are the people flexible now with the terms of what you need to repay.
So life, it takes work, it takes work and you have to pay attention and you have to ask questions. Because I think that this wasn’t even a part of bankruptcy conversation for a while, was it? Having your student loans?
|Ron Drescher:||Well, it’s always been on the outskirts of the bankruptcy conversation. But lately I think people are more desperate, and they’re more willing to take a risk and throw themselves at the mercy of the bankruptcy court. But you know what I want to talk to you about a non-bankruptcy approach to student loans that may work for some of your listeners.|
|Ron Drescher:||I mentioned before, income-based repayments for people who don’t have any income.|
|Ron Drescher:||Bear in mind that income-based repayment programs have a debt cancellation provision depending on the program, 15 years, 20 years or 25 years. And that seems like forever. That seems like, “Ridiculous, I’ll never make that.” But the truth is, you know what, if you’re 30, and your debt is forgiven when you’re 50, you have a lot of great years after you’re 50. 50 is pretty young.|
|Ron Drescher:||People don’t think that way when you’re a kid.|
|Katherine:||Until they get there.|
|Ron Drescher:||But you know what, when you’re 50, you’re still very robust.|
|Ron Drescher:||And you’re very active, and you are really in the prime of life. So with that in mind, if you are not working for whatever reason. Let’s say you’re married and you have children and you decide that one spouse is going to be the earner, and the other spouse is going to stay at home with the children. The spouse that stays at home with the children may have student loans, and that spouse should not go on deferment, should not go on forbearance. That spouse should absolutely 100% go on an income-based repayment. Because let’s say that spouse has zero income for 15 years. You have to file your taxes separately from the working spouse.|
|Ron Drescher:||So you’re going to file your returns that are going to show zero income, and you’re going to send that to the loan servicer, and your income=based repayment is going to be zero dollars. So for 15 years, you’re going to pay zero dollars. That means you only got five years left. If you want to decide now to go back into the workplace, then you keep adjusting it. And then in those five years, you’ll… You only have five years left.|
|Katherine:||Are you telling me it’s just 20 years to pay off a student loan?|
|Ron Drescher:||Well for some it’s 20.|
|Ron Drescher:||If you’re on certain income-based repayment programs, some are 25 years, some are 20 years, and I even think that some are 15 years. I’m not a hundred percent sure of that. But I know that many of the programs that came up during the end of the Bush era and during the Obama era, were 20 year repayment programs on an income-based repayment scheme.|
So that’s what’s… That’s a hidden trick, especially for those families, where one of the spouses is going to stay home and come out of the workforce. And get that clock ticking for the 20 years. And if you’re making zero dollars, take the benefit of those programs.
|Katherine:||My mouth is wide open, and our time, we are over time. But I needed to have you share what you were saying, to finish it today, while we were talking. While we’re here, tell people how to get in touch with you outside of This Needs To Be Said. All of this needed to be said today.|
|Ron Drescher:||I’m happy to get your… You can visit me on the website. Drescher Law, D-R-E-S-C-H-E-R L-A-W.com. You can find me on Twitter @RonDrescher. And you could always give us a call at (410) 484-9000.|
|Katherine:||Thank you, Ron, again as always, for coming on and sharing your knowledge, being patient with me for sure. And until next time, you have a super day. Okay?|
|Ron Drescher:||Thanks a lot, you too.|
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