Student Loan Default

Debtors often ask the question whether student loan debt is dischargeable in bankruptcy. Student loans can be consolidated with your other bills in a Chapter 13 court-ordered repayment plan. During a Chapter 13, the student loan agency must accept payments under the terms of the Chapter 13, just like all of your other creditors. The student loan agency cannot pursue you for any unpaid portion of the student loan during the Chapter 13. After your Chapter 13 discharge, however, the student loan agency may pursue you for any portion of the student loan that was not satisfied by your Chapter 13 payment plan. So, the Chapter 13 will give you temporary relief, allowing you to pay a reduced percentage of your student loan and other outstanding obligations. When the Chapter 13 is discharged or dismissed, however, you will still have to work out a payment plan with the student loan agency.

Generally, student loans are not discharged in a Chapter 7 bankruptcy case. Presently, the only ground for discharge under the bankruptcy code is that the repayment of the loan "will impose an undue hardship on the debtor and the debtor's dependents." Unfortunately, it is extremely difficult and rare to meet the criteria for an "undue hardship" discharge.

There are, however, several options to help borrowers with defaulted student loans:

I. Loan Cancellation:

These types of federal remedies are available to the borrower even if the student loan is not in default. Keep in mind, however, that not all types of loans are eligible for cancellation. To find out what type of loan you have, contact the National Student Loan Data System at 1-800-4-FED-AID, or online at www.nslds.ed.gov.

The following are the main federal programs for student loan cancellation: Forms can be downloaded from (http://www.ed.gov/)..

A. Closed School: Applies to Direct Loans, Perkins Loans and FFELs. Students must have been enrolled in school at the time of closure. If the student withdrew, the withdrawal had to occur within 90 days of the closure. (http://www.ed.gov/.)

B. False Certification: Applies to FFELs and Direct Loans, but not Perkins Loans. To qualify, the student must show that he/she was not able to meet eligible state requirements for the job he/she was training for, or that the school altered or forged loan or check documents. This type of discharge applies only to loans received on or after January 1, 1986.

C. Total and Permanent Disability: This type of discharge applies to FFELs, Direct Loan and Perkins Loan. The borrower must be found totally and completely disabled to be eligible for this type of discharge, and must provide documentation from a physician that they are unable to work because of an illness or injury that is expected to continue indefinitely or result in death. This type of discharge is not available to the borrower if the condition existed at the time the loan was made. However, under new rules, pre-existing conditions may qualify if the borrower suffered substantial deterioration after the loan was granted.

D. Unpaid Refund Discharge: As part of the 1998 Higher Education Act, this discharge will allow students who borrowed after January 1, 1986, to discharge the amount of the loan to the extent of the amount of refund owed to the student which the school failed to reimburse. Included in this discharge are reimbursements of tax refunds seized by the IRS in repayment of the student loan debt to the extent of a refund the school owed the borrower but never paid.

II. Repayment Options:

Even if the borrower does not qualify for a federal discharge, there are still some strategies to explore in dealing with defaulted student loans.

A. Loan Consolidation: This program allows those who do not qualify for a federal discharge to consolidate their defaulted loans into a Federal Direct Consolidation Loan with an Income Contingent Repayment Plan (http://www.ed.gov/directloan).

B. Deferments and Forbearances: Borrowers may qualify for either a deferment or forbearance even if the loan is in default. The main types of deferments are: student deferments; unemployment deferments, and economic hardship deferments. However, keep in mind that deferments may not exceed a three year time period. Forbearances are available even when the loan is in default, but the interest continues to accrue during the forbearance period.

III. Offset of Federal Benefits:

Finally, borrowers whose student loans are in default often inquire as to whether their Social Security Benefits can be taken by the government in repayment of defaulted student loans. Under the 1996 law, the federal government can take benefits from Social Security Retirement and Disability Benefits, Certain Railroad Retirement Benefits, and Black Lung Part B Benefits. However, keep in mind that there are limits on the funds that the government can take, and that the borrower can fight back. You must receive notice of a hearing before any of your benefits are taken.
If you owe on a defaulted student loan, your hearing will be with the Department of Education. At the hearing, you can either challenge the offset, or set up a repayment plan prior to having your benefits seized.

http://www.legalhelpers.com/legal_helpers/brc_student_loan_default.html

Secured & Unsecured Debt

What is the Difference Between Secured Debt and Unsecured Debt?

The most straightforward way to understand the difference between unsecured and secured loan is to work out if your creditor can take away any item or property in the case that you are not able to repay the overdue amount in time.

The basic difference between secured and unsecured debts is that in unsecured debts there is no tangible property or any other kind of product that is attached to that debt, whereas for a secured debt there are tangible items that are attached to the debt. Common examples of unsecured debts are arrangements such as credit cards, medical bills and store cards where you do not have to put up any material as security for the debt. On the other hand, things such as mortgages and car payments usually have tangible items attached to it, i.e.: your house or car.

The difference between the two types of debts is applicable when someone is filing for bankruptcy also. In Chapter 7 Bankruptcy you can make the choice of either keeping the product or property and pay of your debt in some other way. But if you decide that you cannot pay at all then you also have the option of giving the product or property back and paying off your debt in that way. On the other hand, inChapter 13 Bankruptcy you are allowed to keep the merchandise or property but you will be allowed to pay off your debt according to the Chapter 13 plan. That is to say the bankruptcy court will most probably allow the creditor to charge you only about 10% interest, whereas you most probably were paying a much higher interest than that. However, if the value of the item is less that the value of the debt, then the outstanding about that is not covered by the item will be paid as an unsecured debt without interest.

http://www.bankruptcyhome.com/secured-and-unsecured-debt.htm

ending harassment

What is Creditor Harassment?

Creditor harassment may not be a common phenomenon, but it isn’t a rare one either. While harassment may sound too drastic a measure, you will be surprised by what many debtors go through. If you don’t know what we mean, consider yourself lucky!

What Amounts to Harassment?

Under the law, threatening violence, using obscene language and calling persistently with the intent to irritate/annoy amounts to harassment. Also, calling home at odd hours or at work place if there has been a notification to not do so or even calling up relatives or friends without your permission can all amount to harassment.

How Can I Avoid or Bring An End to This Harassment?

It would not be a bad idea to try and start a dialogue with the creditor before anything else, unless you have a strong sense that the person may not be affable. Explain why you are in default, and try to reason with them and ask for payment extensions or alternative arrangements if they can suggest anything, or put forth any ideas you may have.

As much as one would hope reason and logic can win the battle, the fact is that more often that not, it will not work this way. Debt collectors will probably live up to the stereotype of being unreasonable (sometimes even unfair and harsh) people. The next option you, as a debtor, have is to file for bankruptcy. Here is an option that will ensure that all debt collection activities (including phone calls), ethical or otherwise, come to an immediate end. As soon as you file for bankruptcy all creditors and bill creditors must immediately stop their collection efforts. Once you’ve filed for bankruptcy, both the Bankruptcy Court and the attorney will notify all creditors of your bankruptcy through the mail. In the meanwhile, since this could take a week or so to reach them, you can also notify them in case you get a call, or a creditor comes ringing your doorbell.

What if Nothing Works?

First and foremost, there is no question of nothing working out. You must be aware a law called the Fair Debt Collection Practices Act has been put in place to keep a check on issues related to harassment by creditors. Also, in case creditors continue to contact you after you have filed for bankruptcy and informed them of the same, there are penalties and fines in place for them. In fact, once notified that you are represented by an attorney all calls must be directed through the attorney.

Remember, that the creditor may be unreasonable, but the law is not and our attorneys will provide you with able guidance to tackle such issues. Disclose any such instances that you may have experienced, and let the attorney deal with it through the appropriate legal methods.

http://www.bankruptcyhome.com/endharassment.htm

fair credit reporting

What is a Credit Report?

A Credit report holds crucial information about you, such as information about your identity, your professional and personal addresses, and other pertinent information. A credit report is used by a creditor to decide whether or not to extend a credit to you. Information such as your bill-paying habits and your credit history come into play when taking such a decision. Your credit report is created by credit reporting agencies or bureaus which send it to businesses for evaluation.

Why a Law?

The Fair Credit Reporting Act is a federal law that regulates credit reporting companies. The purpose of the act is to ensure “accuracy and fairness of credit reporting.” A lot of things, including the banking system, a debtor’s credit worthiness and capacity, consumer privacy, and creditor decisions on general consumer reputations are dependent on this Act.

How Does This Law Benefit?

These consumer reporting agencies disperse information if or when required by court order, requested by the individual consumer. The information can also be requested by a creditor or some other entity who may want to learn about the credit worthiness of a particular debtor; either with the intent of lending a debt, employment or setting up some type of a business relationship.

The debtor has the right to ask for a copy of their credit report at any point of time. This can be done by mail or phone.

What is Fair Credit Reporting Act?

“The purpose of this [act] is to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this [act].”

The primary purpose of the Fair Credit Reporting Act is to ensure fairness and accuracy of credit reporting, and that the procedures followed are reasonable.

Under the Fair Credit Reporting Act:

• If denied credit, insurance or employment on the basis of your credit report, you may ask the creditor for name and address of the reporting agency, and contact then within 60 days of receiving denial notice to get a free copy of your credit report.
• A credit reporting agency cannot give out information to employers, and certain other information of a specific nature, such as reports that contain medical information, without your consent.
• You can dispute completeness and accuracy of information in your file.
• Derogatory information that is outdated cannot be reported.
• You can seek damages from a reporting agency in a case where they violate the Fair Credit Reporting Act.
• You can request for your name to be removed from the list of reporting agencies. (But keep in mind that once you are off the list, you have to be off it for two years.)

How Do I Contact A Credit Reporting Agency?

There are primarily three national credit bureaus that supply credit reports; Experian, Equifax and Trans Union. You can look up "credit" or "credit rating and reporting" in the yellow pages and make calls, your information may be with more than one agency, calling up more than one is advisable. You will to pay a reasonable fee to get your report.

http://www.bankruptcyhome.com/whatisfaircreditact.htm

What Congress and the Supreme Court Say About Bankruptcy

So what do those who make up and protect the laws of bankruptcy say about the process? As a general development, the government has been trying to make the bankruptcy laws harder, so that people cannot easily get away from the debts they collect. The government would like individuals who are in financial trouble to try to work out new financial plans to work out their debts rather than file for bankruptcy.

At the start, the government had introduced bankruptcy laws as a way for industrious individuals who unfortunately were faced with out of control debts to be able to start afresh with their financial planning and management. However, over the past year it has become evident that there are many people who choose to use the bankruptcy laws in order to avoid their financial obligations. Keeping this adversity in mind, the government has decided to tighten the reins on the bankruptcy laws.

The changes made to the Bankruptcy Abuse Prevention and Consumer Protection Act will ensure that people will not be able to abuse the benefits of filing for bankruptcy. On the other hand, however, those who are in actuality faced with financial difficulties and need bankruptcy laws to protect them will find them it harder to file for bankruptcy.

Bankruptcy laws allow those who have filed for bankruptcy either exemption from or discharging of certain kinds of debts. For those who are involved in out of control debts, they would need a fresh start which is what the government intends to support. But at the same time, it is important that those who are out to take advantage of bankruptcy laws are sifted out in the process.

http://www.bankruptcyhome.com/congresssay.htm

DSQ saga: Closure in India, discovery abroad

While Dinesh Dalmia remains in the custody of the Central Bureau of Investigation in Chennai, federal prosecutors filed charges against him in the US, while the Federal Bureau of Investigations (FBI) continued to probe the deals that duped at least 80 American financiers including several well known banks. After fleeing India to escape prosecution for securities fraud and then fleeing the US this January after duping financiers to the tune of $130 million (including around $30 million to British financiers), Dinesh Dalmia’s luck seems to have run out.

A Chennai court is understood to have cleared “polygraph, narco-analysis and brain mapping tests” to be conducted on him to get his cooperation. Such tests would probably have been considered a serious human rights violation in the US, but in India, the court reportedly considered it better and more humane than third-degree methods of the police.

Interestingly, the Americans are already probing the Dalmia-Allserve relationship that developed after 2002, while the Indian investigators are still stuck in the stock market scam of 2000 where he introduced fake shares in the market having surreptitiously and illegally enhanced the capital of DSQ Software.

The missing link is when he stripped DSQ Software of all valuable contracts (which he sold to Scandent Network, later Scandent Solutions) in April 2002 and spun off the foreign offices of the company into separate companies which were later used to kick-off the call centre business. Dalmia pocketed Rs 145 crore from the sale of DSQ Software’s lucrative contracts to Scandent, but none of that money ever reached DSQ Software, the listed company.

In April 2002, I wrote: ‘‘Companies with the Scandent Network name and different suffixes are also being registered across Europe for enabling the sale. The DSQ companies, including those located abroad, which Dalmia has renamed under the head Total Infosystems are being divided into two categories. The ‘target companies’ are the DSQ companies and they will transfer specified assets, lucrative contracts, nearly 90 per cent of the employees, the goodwill and intellectual property owned by the group.’’

‘‘The ‘mirror companies’ (the nomenclature is self explanatory) are those to which the assets will be transferred by DSQ Software. The transactions were expected to be completed by April 5, 2002. The contracts transferred by DSQ Software, DSQ Europe and Total Infosystems included those with Peregrine Systems Inc, the California-based Liberty Mutual Group, Exel Logistics (formerly known as MSAS Global Logistics Ltd). The deal has never been reported to DSQ Software’s Indian shareholders.’’

The Ministry of Company Affairs (DCA) still allowed him to compound several of his offences. It was only in 2005 that the Company Law Board ordered the appointment of nominee directors on the board of DSQ Software and put them in charge of management. The Serious Frauds Office, which also operates as a part of the MCA has yet to make any known headway in the investigation, although details about Dalmia’s shenanigans are spewing out through media efforts in Indian and the US.

After Scandent acquired the DSQ contracts, it set up base in Bangalore and even got listed on the Indian bourse through a reverse merger with SSI, which it had acquired. Scandent never

had to file a prospectus or face detailed scrutiny by the regulator. Dalmia vanished from India after the Scandent deal in 2002 despite a red-corner Interpol notice against him. He set up base in the US by acquiring a palatial mansion at New Jersey and a fancy red Ferrari. Soon enough, DSQ Software’s branch office was converted into the US headquarters of Allserve Systems. The Allserve story has also ended after the bankruptcy filing in the US. Its operations in London were the first to shut down, followed by those at Bangalore, Gurgaon and Chennai.

Again, Dalmia’s employees have suffered the consequences. Dalmia began to default on US repayments since April 2005, but filed for bankruptcy only around November 2005. By January 2006, employees at Allserve’s Indian operations were not being paid. An employee writing on condition of anonymity says, “We had a big drama and Dharna in the company” to demand payment. After three days of agitation and stoppage of work, we received 50% of our salary”.

But the impact on operations was drastic. The staff strength at that BPO dropped from over 500 per shift to a mere 50-odd employees. At the end of February, the emails stopped and the operations have probably shut down. Meanwhile, Dalmia’s US financiers and investigators are still unscrambling his operations.

The Star-Ledger, has a colourful description of the dawning realisation of how they were duped which merits repetition. ‘‘Charles Stanziale (the bankruptcy trustee) stood yesterday in the ‘cool room’, a climate-controlled, glass-enclosed corner office in North Brunswick where a cluster of cables was designed to link a bank of 6-ft-tall, flashing computer servers to clients across the globe. When tanziale and his associates pulled the plugs on the machines a few weeks ago, a funny thing happened: nothing. “Nobody called,” he said.’’ ‘‘The hardware represented the crumbs left behind from a memorable feast. The host, authorities say, was Dinesh Dalmia. Using aliases, subordinates and shell companies, Dalmia allegedly persuaded seasoned US financial companies to invest more than $100 million in his plan to equip call centers in India. Had they looked closely, the investors would have discovered the hardware was outdated, useless machinery’’, says the writer John P. Martin.

According to Christopher Byron of the New York Post, Dalmia faces up to 40 years in a US prison if he is extradited and convicted on all counts.

http://www.suchetadalal.com/articles/display/80/2003.article

Jet Airways: flying into troubled skies?

Despite copious disclosures, Sebi needs to take time to clear the IPO document
Globally, the airline industry is a mess. Oil prices remain high and airlines are reeling under the impact of thin margins, intense competition and expensive fuel. US Airways and United have filed for bankruptcy and Delta Airway may lose revenue due to lower fares. While the global industry suffers from over-capacity, it is boomtime for aviation in India.

Aviation minister Praful Patel’s liberalisation initiatives have set the stage for new entrants in the Indian skies. As many of these will seek to finance their fleet expansions with public money, a rash of Initial Public Offerings (IPOs) from airline companies can be expected next year.

However, intense competition, tariff wars and high fixed and operating costs will continue to keep airline finances in a precarious state. Fortunately for the sector, researchers find investors are attracted by aviation stock. A study in a Wharton School journal says, “Despite all the challenges in the airline industry, investors are willing to buy airline debt and stock leading to a continuous crop of new competitors entering the market”.

In India, the likely candidates for a public debut are Air Deccan and Kingfisher Airlines, Bombay Dyeing (Go Airways) and Britannia (if it enters the business). In addition, the minister has announced that Indian Airlines (IA) and Air-India may be allowed to divest 10% of their equity in 2006. After its recent financial turnaround and aggressive marketing, IA is certainly capable of giving the competition a run in terms of service as well as efficiency.



• A rush of IPOs from airline companies is expected next year
• Investors must be conscious about all facts before investing
• Sebi terms of clearing Jet Airways prospectus will set the benchmark

Nobody has ever seen an annual report of Sahara Airlines, so it is unclear whether it would subject itself to the sort of disclosures that are demanded from IPO documents. But Jet Airways has taken the plunge and filed a draft prospectus with a 20% offer of its equity.

Although the ownership of Jet Airways has been controversial and subject to multiple investigations, the risk factors listed by the company are startling. Tail Winds Ltd, an Isle of Man company (which holds a 99.99% stake) and a few other entities own Jet Airways. Tail Winds is wholly-owned by Naresh Goyal (NG) and the draft prospectus reveals that he and the promoter group will continue to have a stranglehold over all significant decisions even if their shareholding drops to just 26%.

Apart from Naresh Goyal being a permanent chairman, the NG group will have the power to appoint managing directors, executive directors and one-third of the board. Tail Winds is an overseas corporate body (OCB) which had been deregistered by the Reserve Bank of India and needs to divest its holding to resident and non-resident Indian investors.

Interestingly, for all the airline’s success and the power vested in NG and the owner group, Jet Airways doesn’t even own the brand “Jet Airways”. This is owned by Jet Enterprises, a company “substantially owned by Naresh Goyal”. The company is contractually bound to pay out a fat fee varying between 0.10 and 0.20% of gross revenue as licence fee to NG’s Jet Enterprises. It also pays a fixed annual licence fee of Rs 0.1 million for each trade mark licensed to it.

That too is not a secure arrangement. The draft prospectus says, “Certain parties have raised objections to the registration of the Jet Airways trade mark in the UK and United States”. If the company loses this litigation, would it fly to some destinations under another name? Worse, if the licensing agreement for the trademark expires or is terminated, the Articles of Association of Jet Airways explicitly state that the airline will have to discontinue using the “Jet Airways” trademark and change its corporate name.

Further, the general sales of Jet Airways is outsourced to Jetair Pvt Ltd, another Naresh Goyal-controlled company, which earns a 3% commission on all passenger sales. In addition to the commission (which is over that paid to travel agents) Jetair, the sales agent, seems to recover most of its infrastructure and employee costs from Jet Airways through a ‘charge back’ agreement. In addition to Jetair, there are other promoter-owned subsidiaries in Dubai, Canada and South Africa who also earn commissions from Jet Airways.

These arrangements present what the draft prospectus confesses could lead to “potential conflict between Naresh Goyal and his promoter group and the interests of the airline”. Investors have to be conscious about these facts before investing.

Not owning the trademark becomes even more significant when you read that some of the “promoter group” companies are making losses. However, Jet Airways shows a net profit of Rs 163 crore for the year ended March 31, 2004 and Rs 129 crore for the six month period ending September 2004. These profits were possible after contingent liabilities that add up to a hefty Rs 400 crore. They include Rs 163 crore on outstanding letters of credit, Rs 157 crore on outstanding bank guarantees and Rs 8.8 crore of arrears on “cumulative dividends” to be paid to the International Finance Corporation.

To sum up the situation, we have promoter companies with enormous rights over all corporate decisions and who will keep earning a handsome royalty on the brand name and ticket sales, irrespective of whether the airline makes a profit or not. They will also control every significant decision and contract of the listed company, whether or not they present a conflict with their other interests. It is no wonder then that despite its copious disclosures, Sebi officials need to take their time in clearing the IPO document of Jet Airways. The terms of clearing the Jet Airways prospectus will act as a benchmark for disclosures by other airline companies, at least until Indian Airlines chooses to tap the market.

http://www.suchetadalal.com/articles/display/479/1303.article