Consider Consulting With An Attorney
Youll find the Brunner test or other standards applied to Chapter 7 and Chapter 13 debtors in lots of court cases. Knowing how the court in your jurisdiction ruled previously could help you determine the likelihood of your success.
If you have a substantial amount of student loan debt, it might be worthwhile to consult with a local bankruptcy attorney. The chances are that if you decide to litigate either the dischargeability issue or assert a defense to the loan in bankruptcy court, youll need an attorney to represent you.
Dont Miss: What Is A Bankruptcy Petition Preparer
Wipe Out Secured Debt
If you cant afford a payment that you secured with collateralsuch as a mortgage or car loanyou can wipe out the debt in bankruptcy. But you wont be able to keep the house, car, computer, or other item securing payment of the loan. When you voluntarily agree to secure debt with property, you must pay what you owe or give the property back .
Hardship Persists For A Long Duration Making One Unable To Pay Debt
Its difficult to predict if a bad financial situation will persist for the remaining period of loan repayment. Some factors a court under seeing bankruptcy may consider including to determine how long the hardship persists are as follows:
- Serious physical or mental disability of the debtor or the debtors dependents which prevents employment or growth
- Poor quality of education received from an institution
- Lack of marketable or usable job skills
- Underemployment means they are working in a place that does not match their skills or needs
- The debtors obligations to care for dependents may be overwhelming
- Lack of, or limited education received
- A limited number of years remaining in the debtors work life to allow payment of the loan meaning old age or maybe a severe life-threatening medical condition.
- Unavailability of assets, which could be used to pay the loan
Don’t Miss: Usaa Car Loan Refinance Rates
What Happens If Your Student Loans Aren’t Discharged
If, as in most cases, your loans are not discharged in bankruptcy, here’s what happens.
- Chapter 7 bankruptcy. In Chapter 7 bankruptcy, if payment of your loans is not an undue hardship, you’ll still owe them when your bankruptcy case is over.
- Chapter 13 bankruptcy. If you can’t discharge your student loans, Chapter 13 bankruptcy provides some other ways that can help. For example, you’ll likely be able to pay a reduced amount during your Chapter 13 planalthough you’ll be on the hook for whatever amount is left after your repayment period ends.
How To Prove Undue Hardship For Student Loans
To discharge student loans via bankruptcy, you will have to prove they pose an undue hardship during your adversary proceeding.
The U.S. Bankruptcy Code doesnt define undue hardship, so bankruptcy courts have different interpretations for its meaning. Most use whats known as the Brunner test to determine whether bankruptcy filers student loans meet the undue hardship standard.
You must prove that you meet all three parts of the Brunner test to get your college debt discharged:
1. Making student loan payments would keep you from maintaining a minimal standard of living based on your current income and expenses. To meet this, you generally must have bare-bones expenses and must have done everything in your power to increase your income, without success.
2. Additional circumstances make it very likely that your financial situation will persist for a significant portion of your remaining loan period. Among other things, you may be able to successfully meet this if you have a serious mental or physical disability, received a poor-quality education or have maximized your income potential in your field.
3. Youve made “good faith” efforts to repay your loans. You may meet this prong by making some loan payments, attempting to negotiate a payment plan and working to slash unnecessary expenses and increase income.
Different jurisdictions and judges have different interpretations of these standards so your outcome will depend on your location and the judge you get.
You May Like: Does Autozone Rent Obd2 Scanner
Should You File Student Loan Bankruptcy
While student loan bankruptcy discharge is possible, its likely only worth exploring in the following instances:
Youve exhausted all payment options. If you have federal student loans, see if you can afford income-driven repayment or qualify for a loan forgiveness program. Private student loans have fewer options for struggling borrowers. Still, call your lender or servicer and ask whether they can temporarily lower your payment or interest rate.
Youre past-due on your student loans. If you haven’t missed payments, youll likely have a hard time proving your loans are causing undue hardship. Bankruptcy makes more sense in instances of student loan default especially if you have defaulted on private student loans and your lender is suing you in an attempt to garnish your wages.
You have no pathway out of default. Federal student loans have options to get out of default, including loan rehabilitation and consolidation. If youve defaulted on a loan multiple times, you may have exhausted these options.
» MORE: Debt relief: Understand your options and consequences
These situations are no guarantee a bankruptcy court will discharge your student loans, but it has happened for some borrowers. A study published in the American Bankruptcy Law Journal in 2012 found that, in 207 bankruptcy cases in which debtors included their loans, 39% won full or partial student loan discharges.
Can Bankruptcy Clear Student Loan Debts
It may be possible to obtain a partial or full discharge federal or private student loan debts through bankruptcy, but it can be extremely difficult to do so. In order to qualify for a student debt discharge, you will need to prove undue hardship. What precisely constitutes undue hardship varies from court to court. The burden of proof lies with you for demonstrating you cannot feasibly repay your loans.
Examples of undue hardship include:
- You have a disability or medical issue that is keeping you from working.
- You are on a fixed income without the possibility of a salary increase.
- You have family related issues that are keeping you from earning a living.
To try and discharge your student loans via bankruptcy, you need to begin by filing a formal complaint with the bankruptcy court where you will need to demonstrate that repayment would cause and undue hardship to you.
Also Check: Transfer Auto Loan To Another Bank
Discharging Student Loan Debt
If its found that you meet the exception, the entire amount could be discharged. Sometimes, however, courts will discharge a portion of the debt, leaving you to repay the remainder.
You must file to discharge student loans because of hardship in addition to the standard bankruptcy process. This must be done before the other debt is discharged in Chapter 7. Student loan discharge applications are not included in your bankruptcy fees, so be sure that any additional fees are paid.
If you wish to include your student loans in your application for bankruptcy in Plano, tell your bankruptcy attorney to make sure all of the proper steps are taken. Also keep in mind that student debt is not the only type of debt that cannot be discharged in bankruptcy. This is one of the drawbacks for some individuals who think they will solve all of their debt problems by filing.
Florida Bankruptcy Attorneys To The Rescue
The Bankruptcy Team, PLLC helps clients resolve financial dilemmas through bankruptcy or other legal avenues so that our clients get the fresh starts that they are entitled to. Our lawyers have spent years refining our practice and staying up to date on recent developments within the bankruptcy sphere. We will carefully review your case to determine what the best option is for you and will vigorously pursue all available pathways toward a fresh financial start. While not all debtors will be eligible for discharge of student loan debt, we will ensure that we do everything that we can to put you in the best position to handle your financial affairs. To consult with The Bankruptcy Team, PLLC, or today.
Read More Bankruptcy & Consumer Debt Articles:
Read Also: Usaa Vehicle Loan Rates
Defaulting On Student Loans
How many parents have student loans?
The Department of Education said that 3.3 million borrowers had $74.5 billion in Parent Plus loans in 2016 to pay for their childrens education. Another study by the University of Southern California said the average parent borrows $21,000, but that parents with incomes higher than $120,000 borrow an average of $30,000.
The Consumer Financial Protection bureau said that 2.8 million people 60-and-over were paying on student loans in 2017. That is four times the number who borrowed in 2007. Even worse, the Government Accounting Office says that 37% of student loan borrowers age-65 and over are in default.
If youre considering bankruptcy, your loans are probably already in default, meaning you havent made a payment in more than 270 days . This is more common than you may think. The national default level on student loan repayment is approximately 10%, meaning that 4.4 million borrowers are in default on Americas $1.4 trillion student loan problem.
The Department of Education said that the default rate was falling in 2016, but that is misleading according to many experts because nearly 6.5 million borrowers were in deferment or forbearance, two forms of delay before a borrower goes into default. Austin said his research indicates that 40% of student loan borrowers are either delinquent or in default .
Why Cant People Get Rid Of Student Loans Through Bankruptcy Now
Although not impossible, discharging student loans in bankruptcy is difficult. Due to a 1976 law, student loans are not treated during bankruptcy proceedings like other forms of debt, such as credit card debt or auto loans. This policy stems from a federal commission on bankruptcy laws, which heard testimony that claimed the easy discharge of educational loans in bankruptcy could undermine federal student loan programs. Congress was concerned that students might borrow thousands of dollars from the federal government, graduate, declare bankruptcy to have their student loans discharged and never repay their educational debt.
In an extension of the Higher Education Act of 1965, Congress passed the 1976 law, which made borrowers wait five years after the first student loan payment was due before they could have the loan discharged through bankruptcy. Congress created an exception that allowed for discharge within that five-year period if the loan caused undue hardship.
Congress extended the five-year bankruptcy ban to seven years in 1990. Then Congress extended it to the borrowers lifetime in 1998.
Currently the undue hardship exemption is the only way to have student loans discharged in bankruptcy that is a much higher threshold than many other common forms of debt. This higher threshold includes both federal student loans and, since 2005, most forms of private student loans.
Recommended Reading: Usaa Auto Pre Approval
Recent Developments In Student Loans
Studies suggest that recent bankruptcy filers who petition the court to eliminate some or all of their student loan debt are successful in roughly half of occasions. In the past, nearly all filers received no relief on student loan debt through bankruptcy as filers simply assumed that the courts would be unwilling to eliminate the debt. Coupled with the recent outcry surrounding student loan debt, more filers have begun to take advantage of the shift in public perception concerning the student loan crisis.
Earlier this year, federal bankruptcy judge Cecelia Morris criticized the fact that many lawyers believe it impossible to discharge student loans. She added, This Court will not participate in perpetuating these myths. Still, the likelihood of discharge and the amount of debt eliminated largely depends on the judge handling your bankruptcy case.
It is important to note that filers who have successfully eliminated student loan debt through bankruptcy often do so with the help of an experienced bankruptcy attorney. Critically, student loan debt discharged through bankruptcy is less likely to occur without the help of a bankruptcy attorney as the bankruptcy process requires a particular expertise in the law.
Student Loan Forgiveness And Bankruptcy
Many young adults preparing to go to college will take out student loans to help finance their education. However, not all students who take out loans think about their plan to pay off those loans as soon as possible.
For example, if a student takes out thousands of dollars one year for college, they will most likely take out loans for subsequent years. While a few thousand dollars may not seem like a large sum at one time, the addition of other loans could mean the student owing several thousands of dollars by the end of their college career.
Many turn to bankruptcy when it seems like someone has exhausted all other options to pay off debt. But what does that mean for someone who also has student loans?
Usually, student loans are not included in debt forgiveness when someone files for Chapter 7 or Chapter 13 bankruptcy. However, if a debtor can show that the student loans are causing an undue hardship, there is the possibility of having the loans forgiven.
You May Like: Usaa Used Car Loan Rate
Undue Hardship And Student Loan Discharge
To succeed in having your student loans discharged, you must demonstrate that not having them discharged would cause you to experience “undue hardship.” For a bankruptcy court to take your side, you will have to meet specific conditions. The problem is that there is no uniform set of conditions.
However, your student loan creditorswhich may include lenders, servicers, and collection agencies, depending on the types of loans you have and how far behind you are on paymentsmust also meet specific conditions. They must satisfy the preponderance of the evidence standard, a high standard that requires them to prove that their claims against you are valid. They must also prove that your loans meet the conditions of section 523.
Seeking Help From A Plano Bankruptcy Attorney
Texas is full of excellent colleges and universities. Unfortunately, in addition to an education, some graduates have acquired thousands of dollars in student debt and now are facing additional financial problems.
Consult a bankruptcy attorney at Warren & Migliaccio, L.L.P. Call 888-584-9614 to schedule an appointment. We can go over the process of filing Chapter 7 and whether student loans may be discharged given your current situation.
Don’t Miss: Credit Score Needed For Usaa Personal Loan
Seven Year Rule Or Waiting Period
Section 178 of the Bankruptcy & Insolvency Act in Canada specifically excludes government guaranteed student loans if you have been a full or part-time student any time in the past seven years. To put it simply, if you have been out of school for more than seven years your student loan debt will be eliminated if:
- you or
- if you make a debt proposal to your creditors through a consumer proposal.
If it has been less than seven years since you were a student, your government guaranteed student loan will not be automatically discharged through a bankruptcy or a consumer proposal.
If you have been out of school for 7 years your student loans are eliminated when you claim bankruptcy. You are no longer obligated to pay your student loans. If you have not been out of school for 7 years, you can stop making payments during your bankruptcy or proposal but will be required to start making payments again once you are discharged.
What if I have more debts than just my student loans? If you have other significant debts like credit card debts, lines of credit or payday loans, a bankruptcy or consumer may still be a good option even if you dont meet the waiting period. Filing bankruptcy can help clear other debts and make repaying your student loan more manageable. We know this can be confusing. Our Licensed Insolvency Trustees will discuss the treatment of your specific student loans during your free consultation before you file.
Consider Hiring A Lawyer
While you dont technically have to go through a lawyer when filing bankruptcy on student loans, bankruptcy can be an incredibly complex process. It requires determining which type of bankruptcy youll file for and submitting an extra lawsuit, called an adversary proceeding . Going through it all alone could mean extra time, incorrect filings and, possibly, a lost case.
However, one thing to consider is that hiring a student loan lawyer could actually hurt your chances for discharging your student loans in bankruptcy, according to Fuller. Thats because some judges may feel that if you can afford fees for an attorney, then you can afford to be paying back something on your loans, which would disqualify you from experiencing undue hardship.
If you dont know a lawyer, dont worry. You can find one through the American Bar Association. You might be eligible for a lawyer at no cost to you through the Legal Services Corporation, an independent nonprofit created by Congress that offers financial support for civil legal aid to low-income Americans. Just make sure you pick a lawyer that specializes in bankruptcy and has very good reviews.
If you opt to handle your case yourself, a recent study by the American Bankruptcy Journal noted that debtors without a lawyer were just as likely to have their student loans discharged by a bankruptcy judge as those who worked with an attorney.
Read Also: Capital One Car Loan Apr
Is It Even Possible To Discharge Student Loan Debt In Bankruptcy
Discharging your student loans in bankruptcy isnt impossible, but it requires navigating a challenging process that can be difficult to prove. If youre going to try to get out from under your loans in a bankruptcy, you should understand the requirements to qualify.
Getting your loans discharged in bankruptcy is theoretically possible, but its not your ordinary bankruptcy proceeding, and its incredibly difficult, says Mark Kantrowitz, publisher and vice president of research for SavingForCollege.com.
According to one study, only 0.1% of student loan borrowers declaring bankruptcy even try to get their student loans discharged. Of that fraction, 40% succeed. In other words, just 0.04% of people who have filed for bankruptcy and sought to have their loans discharged received either a full or partial discharge of their student loans.
If nothing else, these stats prove that student loan discharge is possible. But the legal requirements are discouraging and for those who do try, its a tough proposition.
Under current law, student loans cant be claimed in a bankruptcy except in certain circumstances. The only way these loans can be discharged is if theyre found to cause undue hardship on the borrower or the borrowers dependents.