Category Archives: Debt Settlement

settlement of debt, including understanding the collection process

Federal help for ITT students: discharge of student loans

In the light of the ITT technical Institute bankruptcy, many students are left with high student loan debt and no degree.  But there may be some relief available for those who have not yet graduated. It is the purpose of this post to explore those options that the reader might benefit, or pass the information along.

Perhaps a little explanation of the student dilemma in this typical “trade school” is in order. When a school such as ITT closes, the students can’t get the associates, bachelors, and master degrees hoped for;  thus, they are deprived of the “benefit of the bargain”.

For the student, the denial is more than just denial of ego satisfaction.  He has pinned his hopes  on the earning power that degree represents for him.  He anticipates that all will benefit from his efforts.  It will be wonderful for his family.

The school has a different idea:  it is called a profit model.  The measuring stick is the bottom line.  Product quality, marketing, and management are all expenses.  The less expenses the better.  This is what benefits the bottom line.  In this line of thinking, there is no value in educating the customer to become a well informed shopper. The prospective student doesn’t need to know about education cost & education value; such a concern would just interrupt the sales process.

But back to the end result:the school closes.  Now student loan debt is owed on a college degree that won’t be obtained at this institution, and may never be obtained at all.  Without a change of circumstance, the economic power that college degree represents will never materialize.  Some students lose hope, feeling themselves further behind, with more debt and less earning power than planned.

The “Closed school Discharge” is a mechanism put in place by the federal government, to allow the student who cannot complete his degree to seek relief from the student loan burden which he must carry. The information on that federal program can be found at https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/closed-school.  The form which needs to be filled out to apply for administrative discharge can be found at:

http://www.ifap.ed.gov/dpcletters/attachments/GEN1418AttachLoanDischargeAppSchoolClosure.pdf  .

Of course, use of government websites is not always as simple as it looks.  There are certain “gotchas” in the administrative procedure, which do not allow the student who transfers his credits to another school (or has already received his degree) to seek forgiveness of his student loans.

As is true with many government programs, the “simple” process has become quite complex. The student who wants to transfer his credits to a new institution often finds most (if not all) of his credits will not transfer.  This is because of lack of accreditation for the trade school from which he is transferring.

ITT Educational Services has increasingly been the subject of state and federal investigations in recent years.  These actions have resulted often in sanctions against ITT and penalties.  Nevertheless,   the US Department of Education does not recognize the validity of their own investigations, when the student who has his diploma petitions for student loan relief .

In  essence, the Department of Education wants each student to prove that he was defrauded, that “what he got” was too expensive for the results obtained.  In short, the student must prove the price of the education far outweighed its real world earning potential.

This burden falls on the student, even though both federal and many state governments are currently investigating inadequate instruction in rogue schools taking federal student loan moies.  Many of these investigations show oversight of federal student loan lending has been lacking.  Most often, significant findings of neglect and abuse on the part of trade schools were left unwatched but then “discovered” by government agencies.

So it can be tough getting an administrative discharge.  If denied, an appeal can always be taken directly to the Department of Education.  This is where the counsel of an attorney experienced in this area can be quite useful.

If the Department of Education administrative discharge appeal is not effective, every student has access to the federal courts. The student may seek to address the student loan debt directly with the Department of Education in an “adversary complaint” in the bankruptcy courts.

Due to the fact that ITT and other schools have recently lost their entitlement to federal funds from student loans, the courts will be burdened more and more with these issues, as will the Department of Education in considering administrative discharges. At this point in time, it seems that many of the “trade schools” in all probability will be closing in the coming months.

The law on student loans is evolving, as new facts come to light about trade schools, quality of instruction, and quality of job placements.  The ITT bankruptcy does not bode well for the student who did not get the benefit of his bargain, either in quality of instruction or job placement: he will have no recourse against ITT. His only recourse will be against the federal Department of Education, a powerful adversary.

Nevertheless, it is the authors opinion that any student who has not been able to complete his degree due to school closure should apply for the administrative discharge.  If there are issues and complexities, as always seem to arise, competent legal counsel should be used to sort out the mess.

The hope of the next generation that an education will bring them to a satisfying adulthood hangs in the balance. We should not let these young folks down, and saddle them with debt which cannot be paid off.

Financing Issues and Workouts

One of the most common causes for failure in a small business is a lack of capitalization. Businesses often start up with too little cash. Over time, this lack of money becomes amplified, and ultimately those businesses fail. The reason why they fail is not that they don’t have a good product, lack integrity in the marketplace, or fail to perform. They fail simply because they have run out of cash, in the middle of a normal learning curve in servicing the marketplace. Of course, loans can be helpful, but they do not replace a good business model, which allows for mistakes along the way and sufficient time to perfect your business approach.

Even without the luxury of borrowed funds, entrepreneurs feel much stress once cash flow problems arise. It’s hard to pay loans, salaries, utilities, and all the other bills that become due. The pressure increases. Whether there are loans or not, the bills must be paid, and relatives, credit card lenders, and banks are insistent. Frequently, the issue becomes the “burn rate”. In other words, “how long can a business hold on?”

Often the bank or lender have no idea what their financial problems are: sound projections and presentation of a good business plan can do much to assist with the renegotiation of debt. In any event, when default on the loan occurs everyone loses. Neithe the bank nor the borrower obtain anything from insolvency proceedings.

For this reason, our office seeks to help entrepreneurs with planning procedures, before cash flow problems arise. Nevertheless, when these crises do arise, sound counsel is necessary to navigate the dangerous waters of default and reassure the bank that the storm can be weathered.

Sometimes assets need to be sold, lines of business need to be assessed for profitability, and real estate mortgages or personal guarantees need to be added to strengthen security of outstanding loans. Nevertheless, if the entrepreneur believes his value proposition is sound, he is wise to “bet the farm” on his expertise, and continue to plow ahead. In these cases, reassuring the bank, returning liquidity to the business model, and moving toward profitability is an immediate necessity many lawyers lack this kind of business experience, and cannot be of help in this area of business. When faced with the task, most human beings like easy work. Negotiation of loans can be hard work.

I still remember the entrepreneur who came to me to explain his business was not profitable, and he didn’t need the large amount of warehouse space that was under lease. In addition, he was in danger of defaulting on the lease, and having the goods warehoused subject to a landlord’s lien. While exploring his options, he realized as we talked that a competitor (who was a dear friend) might be willing to give him storage space, and even assist him with expanded lines of credit. Since moving his location he is much happier, and profitable too!

In another case the individual owned the real estate from which his business operated. By selling the real estate he was able to become current with suppliers, giving him enough time to sell additional customers, enhancing his profitability. Further, the cash received from selling the real estate allowed him to progress forward without financial worries.

Of course, there are a myriad number of options that a good business lawyer helps his clients explore every day. As a small business owner myself, I believe that the key is flexibility. When we listen to our clients, their needs can best be served by applying our experience to assist them in creating satisfactory legal results.

If you are in need of this kind of help, please do not hesitate to give us a call for a candid opinion as to whether we can help in your situation. We would be more than pleased to be of assistance to you. Call us today at (317) 266-8888. As an alternative, you can email me personally at any time: mike@mikenorrislaw.com.

The Impact of Credit Report Collection Accounts

When applying for a mortgage, everyone knows that your credit report rating is of great importance. If you can lower the interest rate the lender charges you, you can save thousands of dollars each year on hundreds of thousands of dollars borrowed for your home purchase. In addition, as most of us know, the credit report will show your payment history on cars (and other installment loans), and it will also show your credit history on credit cards (and other revolving accounts).

Many do not know that the credit report also picks up the docket from local courts, and reports any judgments that have been filed against you. In addition, one more matter is reported by the Bureau, which is of great significance to those who have borrowed money: their accounts which are in collection.

“In collection” simply means a collection agent is attempting to collect on the alleged debt. This does not mean the debt is owed, or that a judgment has been entered by a court allowing for garnishment of wages. It simply means that the collector is trying to collect money on a debt he says is owed.

You may be “in collections” and not even know it. Nevertheless the rest of the world knows, and the obvious inference is that you’re unwilling or unable to pay your debts. This little known secret of the credit reporting agencies can have great significance when you’re attempting to secure an apartment or job, get a loan, or even get utilities turned on.

Surprisingly, statistics show that 35% of Americans currently have unpaid bills reported to collection agencies, according to an Urban Institute study conducted in the last few months. And it’s not just hospital bills, auto loans, and student loans. Even past due gym membership fees or unpaid cell phone contracts can end up with a collection agency.

And the collectors are always ready. The Federal Reserve Philadelphia bank branch estimate that in 2013 the collections industry employed 140,000 workers, to recover $50 billion of debt that year. Oddly enough, delinquent debt is overwhelmingly concentrated in southern and western states. Texas cities have a large share of their populations reported to collection agencies: Dallas (43%), El Paso (44%), Houston (44%), McAllen (52%), and San Antonio (45%). And the blight is not limited just to Texas. Almost half of Las Vegas residents have debt in collections, and other southern cities a large number of their people facing debt collectors: Orlando, Jacksonville, and Memphis, among others. But some cities fare better, with some demographic populations have low collection rates, just around 20% for Minneapolis, Boston, Honolulu and San Jose (California).

How do these differences come about? Some say this can be blamed on income disparities, and a stagnant economy. US Labor Department statistics show wages have barely kept up with inflation during the five-year recovery starting in 2009, and after-tax income fell for the bottom 20% of earners during that same period.

So what is the morale of the story? The wise consumer will make sure his debts stay out of collection. This practice will reap rich rewards when it comes time to buy a home or car, secure a job or apartment, or secure the lowest loan rates.

Who Pays What and How? Confusion Between Insurers, Medical Providers, and Patients

As all of us know, medical debt is a growing problem in this country. People are living longer, and medical complications arise with age. Insurers have created a complex payment system, and medical providers often worry whether they’ll be paid or not. In the midst of all this, medical costs have skyrocketed, with many consumers unaware of what they’re being charged, or how they can afford to pay the bill. It’s been said that the country is going through a medical crisis; with a rapidly changing environment for care, cost, insurability, and long-term sustainability of our current medical care system.

In this blog post I’m not going to look at the role of medical insurance providers, nor the quality of care provided by our healthcare system. I want to discuss how the medical provider is paid by the patient, when insurance doesn’t apply, and the consumer has no quibble with the quality of services he was provided.

It often happens that consumers are taken by surprise when it comes to medical costs. An unexpected visit to the emergency room or a sudden medical crisis can cause costs to spiral out of control. Assuming insurance doesn’t cover the medical costs, what options does the patient have to negotiate the cost of medical services? Obviously, this situation is aggravated by the fact that many times a patient doesn’t have time to “shop around” in order to find the right price for comparable medical services.

Of course, it is a far more transparent transaction when the insurer isn’t involved. Third parties tend to make the negotiation between the first two parties more complex, and more difficult. When a patient can deal directly with the doctor or hospital, he or she has a greater awareness of what he’s committed to pay, and how best to move the transaction forward.

Aside from cost, a lawyer looks at the transaction as essentially a contractual one. The parties get together and agree on particular services to be provided, and those services have a particular market value. Regardless of what the parties have agreed on in terms of price, the contract is effectively completed by the performance of the services. But what happens when there is no agreement on price? Is the consumer cut off from the option to negotiate, when he didn’t know exactly what he was being charged, and the service was provided without discussion of cost?

This is the essence of the dilemma that patients face. Let’s say, for instance, that a patient receives emergency services (for which he is grateful). After he gets home from the hospital, he wants to pay the “fair market value” of the services, but was never told the cost. When he is confronted with the bill a number of months later, from a number of different providers to whom he has no relationship, what is the appropriate charge which should be paid? Is he bound to all of those providers for monies to be paid as stated in each invoice? What if he gave no consent to the provision of all of those individual services, and never met a number of those individual providers? As every consumer knows, these decisions can be a fairly exhausting set of concerns.

But the law looks at this type of situation in a much more straightforward manner. If there was no agreement on price, price being one of the essential terms of the agreement, there is no enforceable contractual arrangement. In essence, the consumer is free to negotiate with the provider as to the fair market value of the services after they have been provided, due to the fact the provider failed to secure agreement on the contract price. Failing to get the consumers agreement, there is no contract price, and the price is then open to negotiation by the parties.

This brings up the legal theory known as quantum meruit, which is a Latin phrase meaning, “how much has been earned”. Through comparing a particular medical service to other similar services in the marketplace, the consumer can bring a qualified expert opinion in to make the case as to an appropriate price. Obviously, medical providers don’t wish to squabble over the price they’ve stated is due. Nevertheless, the patient has the right to negotiate, and given competent evidence of the fair market value of the service, he has the right to pay what is deserved, not what is claimed.

Of course, all of this can become fairly tangled in the legal transaction, as medical providers do not wish to communicate on these issues, they simply wish to have the bill paid. If the bill they assert is due is not paid, typically they will send it to collectors and the collector will demand payment or put a negative reference on the credit report.

Moving further along, the medical provider may send the bill to an attorney who will seek a judgment, with the consumer totally unaware of the dangers involved until they eventually receive notice of garnishment. Once a judgment is obtained, the medical provider may issue a garnishment of wages, attachment on bank accounts or other property, or a lien on the consumer’s home. Of course, these are fairly harsh remedies, given the fact that there was no agreement on price when the service was performed. This type of process is often a one-sided transaction: “I billed you as I pleased, and now I’m going to take it out of your wages”.

Do you have a medical bill over $20,000 that you suspect is not in fact a “fair price” for the service performed? I’m happy to consult on these matters, and may be able to help you get some relief, if approximately 60 percent of the bill can be paid in cash. Quite often, the amount that’s owed to the medical provider, according to the Social Security reimbursement standards, is approximately half of the bill which the medical provider demands is due. Should you choose to investigate these matters, please do not hesitate to call our office, and ask to discuss these matters with me personally. Give us a call at (317) 266-8888, or email me directly at mike@mikenorrislaw.com.