PHANTOM INCOME – HIDDEN DANGER OF CREDIT CARD SETTLEMENT

You thought your money problems were solved when you settled your credit card debt with the help of that debt consolidation company, but you're in for a ghostly surprise.  The taxman comes trick-or-treating at your door, looking to tax you on that settlement.

Cancellation of Debt 

When you borrow money and the lender later settles the debt, you have to include the cancelled debt amount as income on your tax return. We call this phantom income as you never actually receive it but the IRS nevertheless taxes you on this phantom income as if you did receive it as income. In the eyes of the IRS, all the money saved in the credit card settlement is treated as reportable income for tax purposes.

$50,000 Credit Card Debt

Let’s say you have a $50,000 credit card debt, and you settle the debt for $25,000. The IRS will add that debt reduction of $25,000 to your tax return as income. You’ll be paying a lot more in taxes that year.

Mandatory Tax Reporting Requirements

Every lender is required to report the settled debts/cancelled debts in excess of $600 on IRS Form 1099-C, Cancellation of Debt. The IRS will be cross-checking your tax return with the credit card company's 1099-C to make sure you report the phantom income. You can expect IRS tax penalties and interest if you forget to report this phantom income voluntarily.

Bankruptcy Is Exempt from IRS Cancellation of Debt Rules

There is no phantom income in bankruptcy. The IRS rules don’t apply. 

 It’s free to chat with me about your options – you can call or text me at 215.551.7109.

TOP 4 MYTHS ABOUT BANKRUPTCY

 

There is a lot of false information on the internet about bankruptcy. The truth is that creditors have plenty of motivation to keep you scared of filing or confused into paralysis.  Here are the top 4 myths about bankruptcy that simply aren’t true.

#1 – If I file bankruptcy, it means I’m a failure at life.

NO WAY. The vast majority of bankruptcy filings result from unpredictable life circumstances like losing a job, getting sick or injured, or divorcing.  Bankruptcy is built into our nation’s law to protect you from having your life ruined by debts you can’t pay.

#2 – If I file bankruptcy, I won’t get credit for at least ten years.

WRONG. You’ll start receiving credit card, and car loan offers during a Chapter 7 bankruptcy. I advise clients to obtain a new credit card once they receive their discharge order. You can also borrow money in the middle of a Chapter 13 case, and I have helped countless people purchase cars, even houses, in the middle of Chapter 13 bankruptcy.

#3 – I want to file, but my spouse doesn’t. Therefore, I can’t.

FALSE. You can file individually or together as a married couple. Your spouse does not need to file with you. It’s not required.

#4 – If I file bankruptcy, I’ll lose everything I own!

INCORRECT. Over 99% of Chapter 7 bankruptcy cases filed by individuals are classified as “no asset” cases, in which the debtor ends up keeping everything they own. You can even keep $1.5 million in an IRA and file bankruptcy.

The Bottom Line

There is a lot of false information on the internet. Call an experienced bankruptcy attorney with your questions. It’s free to chat with me about your options – you can call or text me at 215.551.7109.

Can Immigrants File Bankruptcy? HD 1080p

You Deserve a Fresh Start in 2014

The New Year is a good time to evaluate your financial house and consider whether getting a fresh start by filing bankruptcy is the best option for you.

If you have too much debt or feel like you are way over you head in bills, bankruptcy may be right solution for you to get a fresh financial start in 2014.

Bankruptcy wipes out all credit card bills, medical bills, and personal loans. It even erases deficiencies on short sales and repossessed vehicles.

Filing bankruptcy initiates a Court ordered “automatic stay.” The automatic stay immediately stops your creditors from trying to collect from you. Creditors are immediately stopped from garnishing your wages, repossessing your car, or selling your house or other assets at a sheriff sale.

The first step is to make an appointment to meet with an experienced bankruptcy attorney to discuss your financial options. The consultation is free. I don’t judge my clients and always treat everyone with the respect they expect and deserve.

Stephen M. Dunne, Esquire has been consistently voted and named one of Pennsylvania’s Bankruptcy Super Lawyers by Law and Politics published by Philadelphia Magazine and Pennsylvania Super Lawyer for the years 2011-2013.

If you know someone who needs a fresh financial start in 2014, please tell them that I can help them make 2014 the year for a fresh financial start.

Call Today: 215-551-7109.

You Deserve a Fresh Start in 2014

The New Year is a good time to evaluate your financial house and consider whether getting a fresh start by filing bankruptcy is the best option for you.

If you have too much debt or feel like you are way over you head in bills, bankruptcy may be right solution for you to get a fresh financial start in 2014.

Bankruptcy wipes out all credit card bills, medical bills, and personal loans. It even erases deficiencies on short sales and repossessed vehicles.

Filing bankruptcy initiates a Court ordered “automatic stay.” The automatic stay immediately stops your creditors from trying to collect from you. Creditors are immediately stopped from garnishing your wages, repossessing your car, or selling your house or other assets at a sheriff sale.

The first step is to make an appointment to meet with an experienced bankruptcy attorney to discuss your financial options. The consultation is free. I don’t judge my clients and always treat everyone with the respect they expect and deserve.

Stephen M. Dunne, Esquire has been consistently voted and named one of Pennsylvania’s Bankruptcy Super Lawyers by Law and Politics published by Philadelphia Magazine and Pennsylvania Super Lawyer for the years 2011-2013.

If you know someone who needs a fresh financial start in 2014, please tell them that I can help them make 2014 the year for a fresh financial start.

Call Today: 215-551-7109.

You Deserve a Fresh Start in 2014

The New Year is a good time to evaluate your financial house and consider whether getting a fresh start by filing bankruptcy is the best option for you.

If you have too much debt or feel like you are way over you head in bills, bankruptcy may be right solution for you to get a fresh financial start in 2014.

Bankruptcy wipes out all credit card bills, medical bills, and personal loans. It even erases deficiencies on short sales and repossessed vehicles.

Filing bankruptcy initiates a Court ordered “automatic stay.” The automatic stay immediately stops your creditors from trying to collect from you. Creditors are immediately stopped from garnishing your wages, repossessing your car, or selling your house or other assets at a sheriff sale.

The first step is to make an appointment to meet with an experienced bankruptcy attorney to discuss your financial options. The consultation is free. I don’t judge my clients and always treat everyone with the respect they expect and deserve.

Stephen M. Dunne, Esquire has been consistently voted and named one of Pennsylvania’s Bankruptcy Super Lawyers by Law and Politics published by Philadelphia Magazine and Pennsylvania Super Lawyer for the years 2011-2013.

If you know someone who needs a fresh financial start in 2014, please tell them that I can help them make 2014 the year for a fresh financial start.

Call Today: 215-551-7109.

Detroit Bankruptcy - Pensions Aren’t Protected From Cuts

Retirees like Gwendolyn Beasley, 67 years old, who worked 34 years for Detroit as a library clerk has an annual pension of $13,085. Ms. Beasley’s pension could be decimated in the very near future.

A judge declared Detroit eligible for bankruptcy and ruled that pensions aren’t protected from potential cuts. Five months after the city filed for Chapter 9 protection, U.S. Bankruptcy Judge Steven Rhodes said Detroit was entitled to reorganize under bankruptcy law, describing his ruling as a “fresh start” for the city.

Judge Rhodes said Detroit’s public pension holders aren’t entitled to special protection from potential cuts – despite a Michigan state constitutional provision aimed at shielding pensions. “Pension rights are contract rights under the Michigan constitution” and contracts are at risk for cuts under federal bankruptcy law.

Detroit plans on unveiling a proposal in January 2014 to restructure its estimated $18 billion in long-term debt, which makes it the largest-ever municipal bankruptcy in U.S. History.

The city’s unfunded pension liability has been estimated at between $3.5 billion and $8 billion.  The pension funds would undoubtedly receive only a fraction of what they are owed. The pension cuts will have a devastating on city employees and retirees who hoped state law would protect their pensions.

Discharging Cyber Monday Purchases in Bankruptcy

Thanksgiving and Black Friday shopping brought in an estimated $12.3 billion in sales, according to shopping analytics firm ShopperTrak. Overall spending was expected to reach $57.4 billion for the weekend, according to the National Retail Federation.

Can You Discharge Recent Shopping Purchases in Bankruptcy?

The best advice is to consider limiting your shopping to a minimum to avoid any problems with your upcoming chapter 7 bankruptcy case.

There are also a few guideposts to consider contained within the bankruptcy code itself:

1. Cash advances in excess of $875.00 within seventy (70) days of the bankruptcy filing, are nondischargeable.

2. Purchases from a single retailer or service provider exceeding $600.00 for “luxury goods or services” within ninety (90) days of the bankruptcy filing, are nondischargeable.”

What Happens if the Retailer files an Objection to my Case?

Purchases within the above time periods often end up motivating the retailers to file an adversary proceeding in bankruptcy court.

An adversary proceeding contesting dischargeability is essentially a federal lawsuit brought within a bankruptcy. A retailer argues that the debts purchased are non-dischargeable because the bankruptcy code contains a statutory presumption that cash advances are nondischargeable within 70 days and consumer luxury goods are nondischargeable within 90 days.

It is important to note that the statutory presumption simply shifts the the burden from the retailer to the debtor. The debtor is free to rebut the presumption and argue that they DID NOT incur the debt in contemplation of bankruptcy. Generally, evidence establishing that the debtor did not incur the debt in contemplation of bankruptcy will suffice to rebut the presumption.

For instance, a sudden shift in the debtor’s financial circumstances may be sufficient to rebut the retailers contention that the debtor never intended to pay the debt back in the first place.

The Debtor’s Subjective State of Mind

The key issue in a dischargeability hearing rests upon the debtor’s subjective state of mind. For instance, rebuttal evidence illustrating that the debtor had a sudden change in circumstances, or that the debtor did not contemplate filing for bankruptcy until after the debtor took the cash advances, or that the debtor had the subjective intent of repaying the debt at the time the cash advances were obtained.

Discharging Cyber Monday Purchases in Bankruptcy

Thanksgiving and Black Friday shopping brought in an estimated $12.3 billion in sales, according to shopping analytics firm ShopperTrak. Overall spending was expected to reach $57.4 billion for the weekend, according to the National Retail Federation.

Can You Discharge Recent Shopping Purchases in Bankruptcy?

The best advice is to consider limiting your shopping to a minimum to avoid any problems with your upcoming chapter 7 bankruptcy case.

There are also a few guideposts to consider contained within the bankruptcy code itself:

1. Cash advances in excess of $875.00 within seventy (70) days of the bankruptcy filing, are nondischargeable.

2. Purchases from a single retailer or service provider exceeding $600.00 for “luxury goods or services” within ninety (90) days of the bankruptcy filing, are nondischargeable.”

What Happens if the Retailer files an Objection to my Case?

Purchases within the above time periods often end up motivating the retailers to file an adversary proceeding in bankruptcy court.

An adversary proceeding contesting dischargeability is essentially a federal lawsuit brought within a bankruptcy. A retailer argues that the debts purchased are non-dischargeable because the bankruptcy code contains a statutory presumption that cash advances are nondischargeable within 70 days and consumer luxury goods are nondischargeable within 90 days.

It is important to note that the statutory presumption simply shifts the the burden from the retailer to the debtor. The debtor is free to rebut the presumption and argue that they DID NOT incur the debt in contemplation of bankruptcy. Generally, evidence establishing that the debtor did not incur the debt in contemplation of bankruptcy will suffice to rebut the presumption.

For instance, a sudden shift in the debtor’s financial circumstances may be sufficient to rebut the retailers contention that the debtor never intended to pay the debt back in the first place.

The Debtor’s Subjective State of Mind

The key issue in a dischargeability hearing rests upon the debtor’s subjective state of mind. For instance, rebuttal evidence illustrating that the debtor had a sudden change in circumstances, or that the debtor did not contemplate filing for bankruptcy until after the debtor took the cash advances, or that the debtor had the subjective intent of repaying the debt at the time the cash advances were obtained.

Discharging Cyber Monday Purchases in Bankruptcy

Thanksgiving and Black Friday shopping brought in an estimated $12.3 billion in sales, according to shopping analytics firm ShopperTrak. Overall spending was expected to reach $57.4 billion for the weekend, according to the National Retail Federation.

Can You Discharge Recent Shopping Purchases in Bankruptcy?

The best advice is to consider limiting your shopping to a minimum to avoid any problems with your upcoming chapter 7 bankruptcy case.

There are also a few guideposts to consider contained within the bankruptcy code itself:

1. Cash advances in excess of $875.00 within seventy (70) days of the bankruptcy filing, are nondischargeable.

2. Purchases from a single retailer or service provider exceeding $600.00 for “luxury goods or services” within ninety (90) days of the bankruptcy filing, are nondischargeable.”

What Happens if the Retailer files an Objection to my Case?

Purchases within the above time periods often end up motivating the retailers to file an adversary proceeding in bankruptcy court.

An adversary proceeding contesting dischargeability is essentially a federal lawsuit brought within a bankruptcy. A retailer argues that the debts purchased are non-dischargeable because the bankruptcy code contains a statutory presumption that cash advances are nondischargeable within 70 days and consumer luxury goods are nondischargeable within 90 days.

It is important to note that the statutory presumption simply shifts the the burden from the retailer to the debtor. The debtor is free to rebut the presumption and argue that they DID NOT incur the debt in contemplation of bankruptcy. Generally, evidence establishing that the debtor did not incur the debt in contemplation of bankruptcy will suffice to rebut the presumption.

For instance, a sudden shift in the debtor’s financial circumstances may be sufficient to rebut the retailers contention that the debtor never intended to pay the debt back in the first place.

The Debtor’s Subjective State of Mind

The key issue in a dischargeability hearing rests upon the debtor’s subjective state of mind. For instance, rebuttal evidence illustrating that the debtor had a sudden change in circumstances, or that the debtor did not contemplate filing for bankruptcy until after the debtor took the cash advances, or that the debtor had the subjective intent of repaying the debt at the time the cash advances were obtained.

Rapper DMX files Bankruptcy

DMX (Born Earl Simmons) filed for Chapter 11 bankruptcy due to poor financial management. The Chapter 11 petition lists less than $50,000 in assets and $1 million to $10 million in debt. The New York native owes $1.24 million in child support and more than $21,000 on an auto lease.

Can Child Support be Erased?

No. Child support cannot be erased or legally discharged in a bankruptcy case but Chapter 11 bankruptcy does allow debtors to propose a reasonable repayment plan to cure the child support arrearage.

Why did DMX file Bankruptcy?

The State Department will not issue a passport to anyone that has more than $2,500.00 in child support arrearage. DMX has an upcoming international concert tour and the filing of the bankruptcy case allows him to get his passport back and travel abroad.

Rapper DMX files Bankruptcy

DMX (Born Earl Simmons) filed for Chapter 11 bankruptcy due to poor financial management. The Chapter 11 petition lists less than $50,000 in assets and $1 million to $10 million in debt. The New York native owes $1.24 million in child support and more than $21,000 on an auto lease.

Can Child Support be Erased?

No. Child support cannot be erased or legally discharged in a bankruptcy case but Chapter 11 bankruptcy does allow debtors to propose a reasonable repayment plan to cure the child support arrearage.

Why did DMX file Bankruptcy?

The State Department will not issue a passport to anyone that has more than $2,500.00 in child support arrearage. DMX has an upcoming international concert tour and the filing of the bankruptcy case allows him to get his passport back and travel abroad.

What happens in a Chapter 7 bankruptcy case?

Chapter 7 bankruptcy cases are usually straightforward.  On rare occasions, complications arise if creditors take aggressive action, if the trustee thinks you are hiding assets, or if you want to challenge creditors’ claims.

Who can file?

Any individual who lives in the United States or has property or a business in the United States can file a chapter 7 bankruptcy. If you received a chapter 7 bankruptcy discharge within the past eight years, you are disqualified from receiving a discharge in chapter 7. A similar disqualification may also apply if you received a discharge within the past six years in a chapter 13 case in which your unsecured creditors were paid less than 70% of what they were owed.

What is the means test?

In 2005, Congress added the “means test” to the bankruptcy law to make it more difficult for wealthy consumers to file chapter 7 bankruptcy. Most consumers who file for bankruptcy are not affected by this change. If your income is below the median in Pennsylvania, you are protected by a “safe harbor” and not subject to the means test. The current median family income figures for Pennsylvania are available on the website for the Untied States Trustee Program at: www.usdoj.gov/ust. 

What are the first steps?

The first step in a chapter 7 bankruptcy is completion of certain basic forms. These include a three-page initial “petition.” You will also need to file a certificate from an approved credit counseling agency.  A number of other forms must also be filed either at the same time of the petition or shortly afterwards. These include your statement of financial affairs, statement of intentions with respect to certain secured debts, statement of monthly income and means test calculations, copies of any pay stubs you received from an employer during the sixty days before filing your bankruptcy case; and a set of schedules listing all your debts, assets, income, and expenses. It is important that all of these forms be filled out completely and accurately.

What are common mistakes?

A chapter 7 bankruptcy is often called a “liquidation” bankruptcy because the debtors assets are examined by the court appointed  trustee and any “unexempt” assets are typically sold for the benefit of creditors.  Frequently overlooked assets include tax refunds, child support arrearages, security deposits, pledged goods at pawnbrokers, personal injury claims, other legal claims, and the cash value of life insurance policies.

Is Bankruptcy the Right Choice for You?

1. Bankruptcy may be the easiest and fastest way to deal with all types of debt problems.Bankruptcy is a process under federal law designed to help people and businesses get protection from their creditors.

2. Most bankruptcy cases are complicated. You should consider getting professional help.Bankruptcy is a legal proceeding with complicated rules and paperwork. You may want to get professional legal help, especially if you hope to use bankruptcy to prevent foreclosure or repossession. Dunne Law Offices, P.C. provides a free consultation to help you decide whether bankruptcy is the right choice.

3. Bankruptcy temporarily stops almost all creditors from taking any steps against you. This assistance is provided by the “automatic stay” that arises as soon as you file the necessary paperwork at the beginning of a bankruptcy case. Foreclosures, repossessions, utility shut-offs, lawsuits, and other creditor actions will be immediately stopped.

4. Bankruptcy can permanently wipe out your legal obligation to pay back many of your debts. This benefit arises because of the bankruptcy “discharge” that you get for successfully completing a bankruptcy case.

5. When a bankruptcy does not wipe out a debt, a chapter 13 bankruptcy (a “reorganization”) gives you the opportunity to catch up on that debt. For example, if you are behind on a home mortgage or car loan, bankruptcy will not usually allow you to cancel the mortgage or lien and still keep the property without repayment. If you want to deal with debts of that type in the bankruptcy process, you will need to propose a chapter 13 repayment plan. That requires affordable payments from your income over a period of three to five years.

6. The initial fee for bankruptcy is presently $306 under chapter 7 and $281 under chapter 13. The fee can be paid in installments over a period of 120 days.

7. If you file bankruptcy in Philadelphia, you usually do not need to go to court.You will have to attend one meeting with the bankruptcy trustee (not with a judge). Creditors are invited but rarely attend. You will not usually have to go to court for your bankruptcy case unless something out of the ordinary occurs.

Is Bankruptcy the Right Choice for You?

1. Bankruptcy may be the easiest and fastest way to deal with all types of debt problems.Bankruptcy is a process under federal law designed to help people and businesses get protection from their creditors.

2. Most bankruptcy cases are complicated. You should consider getting professional help.Bankruptcy is a legal proceeding with complicated rules and paperwork. You may want to get professional legal help, especially if you hope to use bankruptcy to prevent foreclosure or repossession. Dunne Law Offices, P.C. provides a free consultation to help you decide whether bankruptcy is the right choice.

3. Bankruptcy temporarily stops almost all creditors from taking any steps against you. This assistance is provided by the “automatic stay” that arises as soon as you file the necessary paperwork at the beginning of a bankruptcy case. Foreclosures, repossessions, utility shut-offs, lawsuits, and other creditor actions will be immediately stopped.

4. Bankruptcy can permanently wipe out your legal obligation to pay back many of your debts. This benefit arises because of the bankruptcy “discharge” that you get for successfully completing a bankruptcy case.

5. When a bankruptcy does not wipe out a debt, a chapter 13 bankruptcy (a “reorganization”) gives you the opportunity to catch up on that debt. For example, if you are behind on a home mortgage or car loan, bankruptcy will not usually allow you to cancel the mortgage or lien and still keep the property without repayment. If you want to deal with debts of that type in the bankruptcy process, you will need to propose a chapter 13 repayment plan. That requires affordable payments from your income over a period of three to five years.

6. The initial fee for bankruptcy is presently $306 under chapter 7 and $281 under chapter 13. The fee can be paid in installments over a period of 120 days.

7. If you file bankruptcy in Philadelphia, you usually do not need to go to court.You will have to attend one meeting with the bankruptcy trustee (not with a judge). Creditors are invited but rarely attend. You will not usually have to go to court for your bankruptcy case unless something out of the ordinary occurs.

Is Bankruptcy the Right Choice for You?

1. Bankruptcy may be the easiest and fastest way to deal with all types of debt problems.Bankruptcy is a process under federal law designed to help people and businesses get protection from their creditors.

2. Most bankruptcy cases are complicated. You should consider getting professional help.Bankruptcy is a legal proceeding with complicated rules and paperwork. You may want to get professional legal help, especially if you hope to use bankruptcy to prevent foreclosure or repossession. Dunne Law Offices, P.C. provides a free consultation to help you decide whether bankruptcy is the right choice.

3. Bankruptcy temporarily stops almost all creditors from taking any steps against you. This assistance is provided by the “automatic stay” that arises as soon as you file the necessary paperwork at the beginning of a bankruptcy case. Foreclosures, repossessions, utility shut-offs, lawsuits, and other creditor actions will be immediately stopped.

4. Bankruptcy can permanently wipe out your legal obligation to pay back many of your debts. This benefit arises because of the bankruptcy “discharge” that you get for successfully completing a bankruptcy case.

5. When a bankruptcy does not wipe out a debt, a chapter 13 bankruptcy (a “reorganization”) gives you the opportunity to catch up on that debt. For example, if you are behind on a home mortgage or car loan, bankruptcy will not usually allow you to cancel the mortgage or lien and still keep the property without repayment. If you want to deal with debts of that type in the bankruptcy process, you will need to propose a chapter 13 repayment plan. That requires affordable payments from your income over a period of three to five years.

6. The initial fee for bankruptcy is presently $306 under chapter 7 and $281 under chapter 13. The fee can be paid in installments over a period of 120 days.

7. If you file bankruptcy in Philadelphia, you usually do not need to go to court.You will have to attend one meeting with the bankruptcy trustee (not with a judge). Creditors are invited but rarely attend. You will not usually have to go to court for your bankruptcy case unless something out of the ordinary occurs.

Disability Discharge of Federal Student Loans

The borrower’s permanent and total disability is grounds for a student loan discharge. Borrowers with FFELs, Direct Loans, and Perkins loans are eligible for this discharge.[1] This includes consolidation loans.

The definition of disability changed as of July 1, 2010. The new definition is less restrictive and is more favorable for borrowers because it allows discharges to be granted to borrowers who are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, can be expected to last for a continuous period of 60 months, or has lasted for a continuous period of 60 months.[2]

The borrower applies directly to the loan holder for a disability discharge. If the borrower has different loan holders, the borrower should submit a separate application to each loan holder.

In order to help ensure a more efficient application process, borrowers should follow these guidelines from the Department:

1. Be sure to sign the application. A photocopy must contain an original signature.
2. Separate applications must be submitted to each loan holder. Copies may be submitted. However, each copy must have an original borrower signature. Original physician signatures are not required on each copy.
3. The application must be signed by a doctor of medicine or osteopathy who is licenses to practice in the United States.
4. The doctor must complete the application.
5. Doctors should not use medical abbreviations or insurance codes on the application.
6. The doctor must provide more than a diagnosis. The doctor must also identify the medical condition and clearly and fully explain how the condition prevents the borrower from working and earning money.

The lender may continue collection activity until it receives the certification of disability. The borrower may request an administrative forbearance to stop collection activity during the review period.

It is important for borrowers to realize that the Department of Education has a very high rate of denials due to “medical review failures.” However, the denial is not tied to an actual medical review. Instead, this is a generic denial category that can mean anything from a missing license number to the physician forgetting to check a box on the application form. The Department of Education often sends a follow-up letter to physicians that require a relatively prompt response and failure of the physician to timely respond may lead to a medical review failure. Borrower should not assume that a denial based on a medical review failure is tied to an actual medical review.

The Department of Education has set up a Disability Discharge Loan Servicing Center. The center can be contacted by phone at 1-888-869-4169, by email at disability_discharge@acs-inc.com, or by regular mail at U.S. Department of Education Disability Discharge Loan Servicing Center, P.O. Box 5200, Greenville, TX 75403-5200. Hearing impaired individuals with access to TDD can call 1-888-636-6401.

If borrower obtains a discharge, the balance of the loan is discharged.[3]

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

[1] 20 U.S.C. § 1087(a); 34 C.F.R. §§ 674.61 (Perkins Loan), 682.402(c) (FFEL), 685.213 (Direct Loan).

[2] 34 C.F.R. § 682.200

[3] 34 C.F.R. § 682.402(c)(3)(ii).

Disability Discharge of Federal Student Loans

The borrower’s permanent and total disability is grounds for a student loan discharge. Borrowers with FFELs, Direct Loans, and Perkins loans are eligible for this discharge.[1] This includes consolidation loans.

The definition of disability changed as of July 1, 2010. The new definition is less restrictive and is more favorable for borrowers because it allows discharges to be granted to borrowers who are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, can be expected to last for a continuous period of 60 months, or has lasted for a continuous period of 60 months.[2]

The borrower applies directly to the loan holder for a disability discharge. If the borrower has different loan holders, the borrower should submit a separate application to each loan holder.

In order to help ensure a more efficient application process, borrowers should follow these guidelines from the Department:

1. Be sure to sign the application. A photocopy must contain an original signature.
2. Separate applications must be submitted to each loan holder. Copies may be submitted. However, each copy must have an original borrower signature. Original physician signatures are not required on each copy.
3. The application must be signed by a doctor of medicine or osteopathy who is licenses to practice in the United States.
4. The doctor must complete the application.
5. Doctors should not use medical abbreviations or insurance codes on the application.
6. The doctor must provide more than a diagnosis. The doctor must also identify the medical condition and clearly and fully explain how the condition prevents the borrower from working and earning money.

The lender may continue collection activity until it receives the certification of disability. The borrower may request an administrative forbearance to stop collection activity during the review period.

It is important for borrowers to realize that the Department of Education has a very high rate of denials due to “medical review failures.” However, the denial is not tied to an actual medical review. Instead, this is a generic denial category that can mean anything from a missing license number to the physician forgetting to check a box on the application form. The Department of Education often sends a follow-up letter to physicians that require a relatively prompt response and failure of the physician to timely respond may lead to a medical review failure. Borrower should not assume that a denial based on a medical review failure is tied to an actual medical review.

The Department of Education has set up a Disability Discharge Loan Servicing Center. The center can be contacted by phone at 1-888-869-4169, by email at disability_discharge@acs-inc.com, or by regular mail at U.S. Department of Education Disability Discharge Loan Servicing Center, P.O. Box 5200, Greenville, TX 75403-5200. Hearing impaired individuals with access to TDD can call 1-888-636-6401.

If borrower obtains a discharge, the balance of the loan is discharged.[3]

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

[1] 20 U.S.C. § 1087(a); 34 C.F.R. §§ 674.61 (Perkins Loan), 682.402(c) (FFEL), 685.213 (Direct Loan).

[2] 34 C.F.R. § 682.200

[3] 34 C.F.R. § 682.402(c)(3)(ii).