BANK SETOFFS

Before filing a bankruptcy we often advise clients to move bank accounts to another lender to which they don't owe any debts. The problem is that when a borrower defaults on a debt to a lender that same lender can offset the defaulted debt against any funds they're holding in an account. So $500 in a bank account can be offset or taken to apply to a defaulted $1000 personal loan. There are restrictions on a lender's right to setoff funds however. One of the most important is that the Fair Credit Billing Act prohibits a credit card issuer from offsetting funds in an account to satisfy a credit card bill. So if you have a bank account at Wells Fargo the bank is prohibited from offsetting funds in that account against a Wells Fargo issued credit card. An exception to this rule is where you've given the bank written authorization to take automatic payments from your account. Another restriction on the ability to offset is where the bank account contains only exempt funds, such as Social Security or child support funds.

Some credit unions may try to assert a security interest in the deposit accounts that would allow them to offset funds but the requirements for having a valid security interest in an account are strict. If you've suffered an offset from a bank or are contemplating bankruptcy and owe a debt to a lender where you also have an account be sure to talk to us about it in advance.

SALLIE MAE FAILING TO HELP STUDENT LOAN BORROWERS

The Income-Based Repayment (IBR) Program allows borrowers to repay their federal student loans with a monthly payment that reflects their overall financial circumstances. Borrowers in the IBR program can even have the remainder of their loans forgiven after years of current payments. It's probably the best option for people struggling to repay federal student loans, which now exceeds $1 trillion nationally. Unfortunately, the nation's largest servicer of federal student loans, Sallie Mae, is failing to enroll as many borrowers into the program as are eligible. An analysis by the Huffington Post shows that relatively few of the loans serviced by Sallie Mae and eligible for IBR are enrolled in the program. The exact cause of Sallie Mae's poor performance in enrolling borrowers into the program is unknown but Sallie Mae's president suggested that helping borrowers take advantage of the income based repayment plan is too expensive.

According to the Huffington Post article, Sallie Mae has other problems also. The U.S. Department of Education has announced that of the four companies used by the Department to service federal student loans, Sallie Mae will be given the fewest number of loans to administer next year. Sallie Mae's contract with the Department of Education also expires next year and there are many people recommending that the contract not be renewed because of the company's poor performance in helping borrowers. If you're facing student loan problems contact us to discuss what options, including the IBR might be available.