Most of my clients come to me after a garnishment has been sent to their job. A few come to see me as soon as they are served with the lawsuit. I wish they would come to see me on the day they get sued, but that is not always practical.
If you get sued or served with papers trying to collect a debt there are several things you can do.
1) Ignore everything and hope it goes away.
Yes and no. Student loans cannot be discharged in a Chapter 7 or Chapter 13 bankruptcy (unless you can establish substantial hardship). Changes to the US Bankruptcy Code in 2005 even made private student loans non-dischargeable. BUT – a Chapter 13 does allow you to decrease or stabilize the repayment of your student loan debt for a 3-5 yr period. In a Chapter 13 bankruptcy, you can decide how much you can afford to pay monthly towards this debt rather than being at the mercy of possible garnishment, seizure of your tax refund, and bank account funds. If you are facing hardship due to student loan debt, consult an experienced bankruptcy attorney to fully understand all options and strategies available to you as soon as possible. You may not need to take action immediately, but you need to know what options are available so that you can take action quickly if and when it is needed.
A debtor must establish a substantial or undue hardship in order to receive a discharge (debt wiped out) of student loan debt in a Chapter 7 or Chapter 13 bankruptcy. Undue hardship typically means that you cannot maintain a minimally adequate standard of living and repay the loan. The rule, found in a New York bankruptcy case called Brunner vs New York Higher Education Services Corp., sets out a 3 part road map for discharging student loans in Chapter 7 bankruptcy.
The definition of student loans now includes private student loans as well as the federally-guaranteed ones and most bankruptcy courts take a hard line on this test, making it extremely difficult to discharge a student loan in bankruptcy, but, in rare cases, possible.
Frank with Kevin Farrell, the Host of Money Talks
If you are a self-employed worker you will receive a 1099 for your wages instead of a W-2 form. But there is another type of 1099 that you may receive from one of your creditors. This is form 1099C. A 1099C form is used when all or a portion of a debt is canceled or forgiven by the creditor. If the amount exceeds $600.00 a creditor must report this debt forgiveness to the IRS. The IRS counts the forgiven or cancelled debt as income that must be reported on your tax return.
You should receive a copy of the 1099C form in the mail from your creditor(s) when they file the form with the IRS. You may not have gotten a copy. If not, the IRS will send you a notice stating you failed to include income on your tax return as a result of a creditor filing the 1099C form. Now you owe taxes, penalties and interest on the amount.
But wait, there are reasons why you may not have to pay taxes on this canceled debt. Here are some of the exceptions listed in IRS Publication 4681 that would relive you of the taxes, penalties and interest.
First of all, discuss your situation with a competent and knowledgeable bankruptcy attorney, preferably one who only represents consumers. Do it before you do anything thing else, before you pay any creditors or relatives, before you give any property away, before you let the house go, before you take on new credit or sell any of your property.
There are numerous differences between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy in Mississippi and many reasons to choose one over the other. Here is a list of reasons why a Mississippi Chapter 13 Bankruptcy might be the best option for you:
A Chapter 13 will save a house from foreclosure.
There is a provision of the bankruptcy law that allows Mississippi homeowners to eliminate second mortgages. Not widely known, this section of the bankruptcy code is becoming increasingly popular to bring the mortgage debt closer to the real value of the home.
Bankruptcy law prevents a homeowner from getting rid of the first mortgage if they want to keep the home, but the rules don’t apply to second mortgages. The second mortgage can be stripped off (canceled) if there is no equity to cover the debt, which is the case for thousands of Mississippi homes that are worth a lot less now.
The law has been in effect for years, but during the housing boom houses were worth much more and there was not much occasion to use it. This is only available in Chapter 13 bankruptcy.
Mississippi Consumer Help Blog