Old Federal Loan Programs
There are a few federal student loan programs that are no longer available. But, they still show up online when you do a search for federal loans, so itâs good to know what they are.
Federal Family Education Program
Under FFEL, the loans were made by private lenders, insured by guaranty agencies, and then insured again by the federal government. Basically, if the student defaulted on a loan issued under FFEL, the federal government would pick up the tab and repay the private lender. No new FFEL Program loans have been made since July 1, 2010.
Federal Perkins Loans
This type of federal loan has a low interest rate and is reserved for students with exceptional financial need. No new Perkins Loans have been made since September 30, 2017.
An Lit Will Help You Determine Your Bankruptcy Cost
While the idea of declaring bankruptcy may at first seem overwhelming and complex, its not as scary as you may think. All bankruptcy rules and;regulations;are in place to ensure that all individuals who file;for bankruptcy are treated fairly.;Your LIT is;your most;important resource.;He or she;will;guide you through each step of the bankruptcy process.;
Debt is stressful. Talking to a professional as soon as possible means youll have all your options laid out;for you.;If bankruptcy;is;the best;solution for you, your LIT can get the process started for you immediately. If another option, like a;consumer proposal, is a better fit, youll learn that, too. The sooner you start the process the sooner youll be;free from unmanageable debt and ready to start the next chapter of your life.;
Wondering what the costs of bankruptcy would be in your situation? Meet with a Licensed Insolvency Trustee for a free consultation today.;;
How Student Loan Bankruptcy Works
If youre considering student loan bankruptcy, falling behind on your payments will have had a major impact on your life. Perhaps your wages have been garnished because a lender took out a judgment against you. The federal government may have kept your tax refund and applied it to your federal student loans because they were delinquent or in default.
Your student debt is probably just one component of the financial challenges you are currently facing. In fact, if student debt is your only problem, you are unlikely to succeed in getting it discharged through bankruptcy. Filing for student loan bankruptcy is not easy and does not guarantee that you will walk away debt-free. But if your credit is shot, bankruptcy could be a faster path to financial health than continuing to struggle to pay your debts.
There is no special type of bankruptcy called “student loan bankruptcy.” Succeeding in having student loans discharged through bankruptcy involves filing Chapter 7 or Chapter 13 and then taking an additional step, which is filing an “adversary proceeding,” or AP. The AP must be filed to have your student loans considered for discharge.
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Student Loans Are Difficult To Discharge
You can usually discharge unsecured debts, like credit card debt, medical bills, and personal, loans, in bankruptcy. Student loans are also unsecured debts, but bankruptcy treats them differently. Unlike most other unsecured debts, you cannot automatically discharge them in Chapter 7 or Chapter 13 bankruptcy.
To discharge student loans, you must to file a separate lawsuit in your bankruptcy case, called an adversary proceeding. To win that proceeding, you must show the court that paying your student loans will cause you or your dependents a hardship. The standard for proving a hardship differs depending on your jurisdiction but is always a steep obstacle to overcome.
To learn more about what constitutes a hardship, read Student Loan Debt in Bankruptcy.
Bankruptcy And Financial Aid
This page answers common questions about the relationship between bankruptcy and financial aid, such as student loans. The first answer concerns the impact of bankruptcy on;eligibility for student loans. The second answer discusses whether student loans can be;discharged through bankruptcy.
Thanks to Pat Somers of the Univ. of Arkansas at Little Rock and Art Bilski of the Illinois Student Assistance Commission for their assistance with this section.
Bankruptcy and Eligibility for Financial Aid
Will a bankruptcy affect a students future eligibility for student loans and other financial aid?
The answer to this question is a complex one because several issues are involved. It depends on the nature of the student loan programs and the type of bankruptcy.
Whatever the circumstances behind the bankruptcy, the student should talk with the financial aid administrator at the school he plans to attend, and explain the situation. The financial aid administrator may be able to guide the student to certain loan programs or lenders that may fit his needs.
Generally speaking, a bankruptcy should have no impact on eligibility for federal student aid.
The anti-discrimination rules appear in 11 USC 525:
Discharging Student Loans Through Bankruptcy
- if the borrower files an undue hardship petition
Types of Bankruptcies
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Now That I Have Some Knowledge What Do I Do
- Make A Plan: Review your financial situation and see what is the maximum amount of money your able to allocate to your student loans. Get this paid down. Get disciplined.
- Don’t be Normal: In order to pay these off you have to work and work hard. Discipline is key. Set an automatic monthly payment higher than your recommended and get after it. Yes, you may have to skip out on a vacation or two or travel on a budget. maybe eat in more but that’s the process. Success is not easy but when you pay off your student loans a weight has been lifted and you are free. That monthly payment can go towards a nice vacation, a home new apartment. When youre free, youre free.
- Enjoy The Ride: celebrate each milestone. Work hard, make sacrifices but don’t forgot too much. work as much as you can without harming your other life goals. enjoy the process and be an example to others.
Minimal Standard Of Living
The first factor that will be taken into consideration is your ability to maintain a minimal standard of living for yourself and your dependents given your student loan debt and monthly payments. This does not mean that only people living in poverty with no possessions will satisfy this requirement. Courts will look at your monthly income and your monthly expenses including the amount necessary to repay your student debt. The purpose of this is to determine the reasonableness of your budget as a whole.
A minimal standard of living includes, among other things, furnished and maintained shelter, basic utilities, food, clothing, vehicles, insurance, and even the ability to pay for a source of recreation. Again, the court will look at the reasonableness of each of these expenses.
This prong can be tough to meet for individuals with federal student loans due to the fact that there are income-driven repayment plans available, which can greatly lower monthly payments. If your monthly student loan payment is $0 or something close to that, it is hard to argue that such a small amount is preventing you from sustaining a minimal standard of living. However, it is possible for an individual to have unaffordable payments even while on an income-driven repayment.
Courts may also consider the individuals spouses income in addition to the individuals income when determining the minimal standard of living even if the individuals spouse has not declared bankruptcy as a co-debtor.
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Defining Abuse & Determining Eligibility
The Bankruptcy Abuse Prevention portion of the Act did one big thing it created the means test as a way to identify potential abuse of the process. Basically, when you file for bankruptcy, your income is compared with the median income line in your state. If you want to file for Chapter 7 bankruptcy, you have to;pass the means test to be eligible. Otherwise, your filing can be dismissed or converted to a Chapter 13 filing.
Still, this doesnt mean you should be scared that your filing will be rejected. If you legitimately need to file for bankruptcy, there shouldnt be a problem. You should be able to make some kind of filing that you work out with the courts. Just avoid bad faith practices that might get you flagged for abuse, such as running up credit card debt to max out all of your cards the week before you file.
Types Of Federal Financial Aid
Federal student aid comes in a variety of forms. Some types of federal aid donât have to be paid back. These usually come in the form of grants, scholarships, and work-study jobs. But, since this type of financial aid usually doesnât cover the full cost of attending a college or university, most people take out student loans to cover the difference. Student loans do have to be paid back.
To apply for federal student aid, youâll have to complete the Free Application for Federal Student Aid, or FAFSA form. According to the U.S. Department of Education, financial need is one of the primary eligibility requirements for most federal financial aid programs.
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Bankruptcy And Student Loans: A Guide
Posted: Jun 21, 2021 ;· If student loan payments are your only financial issue, though, there is a much smaller chance that you will be successful having them discharged through bankruptcy. When you file for bankruptcy in the hopes of having your student loans discharged, there is no guarantee that you will walk away without debt.
Nondischargeable Debts: Debts You Cant Discharge In Bankruptcy
When its time to wash your hands of burdensome debt, bankruptcy is often a good betespecially for credit card balances, personal loans, and medical bills. No matter what you do, however, some bills just dont go awaynot even in bankruptcy. Theyre called nondischargeable debts, and if you have one, youre likely stuck with it.
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How To File Bankruptcy On Student Loan Debt And Get A
Posted: Jun 26, 2021 ;· Student loan bankruptcy refers to the process where a debtor files bankruptcy and then files a complaint to discharge their student loan debt. Under bankruptcy law, there’s not a specific type of student loan bankruptcy. Instead, most people file what is referred to as consumer bankruptcy cases, Chapter 7 and Chapter 13. …
How To File For Bankruptcy With Student Loan Debt
Posted: Jun 25, 2021 ;· We are an experienced student loan bankruptcy law firm who has helped thousands of people in financial distress. We understand that student loans can be overwhelming and daunting and are here to help you through the process. Please give us a call to schedule a free consultation at 914.472.6202. Posted in News.
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Debts That Can And Cant Be Discharged In Chapter 7 Bankruptcy
Chapter 7 should dismiss most of the debts you owe, but there are some hard-and-fast debts that cant be discharged in Chapter 7.
The list of non-dischargeable debts includes:
- Child support
- Student loans must prove undue hardship
- HOA fees if you surrender your home or condo
- Any other form of unsecured debt.
Overview Of An Adversary Proceeding To Discharge Student Loans In Bankruptcy
It doesnât matter what type of bankruptcy is filed. Student loan borrowers in both Chapter 7 and Chapter 13 bankruptcy can bring an adversary proceeding against to discharge student loans. But, since Chapter 13 bankruptcy requires a payment plan and involves filers with a monthly income sufficient to make monthly payments, showing undue hardship is more difficult.
The purpose of the adversary proceeding is to show the bankruptcy court that your current income isnât enough to maintain a minimal standard of living while having to make student loan payments. If you can make this showing, the bankruptcy discharge will give you a true fresh start by wiping out your student loan debt.
Why do people say student loans canât be discharged in a bankruptcy proceeding?
Because itâs not automatic like it is for credit cards or other personal loans. It takes an extra step, and bankruptcy courts have often made it hard for student loan borrowers to discharge student loans. Thereâs the Brunner Test, for example, which requires you to show that youâve made a good faith effort to pay back your loan.
If you havenât made student loan payments, that can be held against you, even if you had a deferment. You also have to show that your inability to make student loan payments will continue for a significant portion of the repayment period for the loan.
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Advantages And Disadvantages Of Student Loan Debt Consolidation
Here are some advantages of getting a debt consolidation loan to deal with your student loans:
- If you consolidate your government-guaranteed student loans with a bank or other lender, you will then owe the money to a bank, rather than the government. This can be a big advantage, since if you dont pay your student loan the federal government can seize your tax refunds; the bank cannot seize tax refunds for non-payment.
- It may be possible to negotiate more favourable interest rates with another lender.
- Your credit rating could improve. If you have a negative credit report because of past-due student loan payments, a debt consolidation loan may allow you to get back on track and repair your bad credit.
- You may be able to negotiate to repay your debts over an extended period, potentially decreasing your overall monthly payments.
There are, however, a few disadvantages to getting a debt consolidation loan to deal with your student loans:
There are significant advantages but also some important disadvantages to consolidating your student loans. It can seem quite complicated!
Government Versus Private Loans
The federal government is the lender for a significant percentage of student loans. However, private financial institutions, such as banks, also offer loans to students, primarily because many students cannot fund their entire education without such supplementation. It doesn’t matter whether you have a government or a private student loan. To discharge either in bankruptcy, you must show that repaying the loan would cause undue hardship.
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When To File Chapter 7 Bankruptcy
There are several warning signs that you should be considering Chapter 7 bankruptcy. Five strong signs that indicate filing for Chapter 7 may be the right solution include:
Is Bankruptcy The Right Choice For You
There’s no doubt bankruptcy is a last resort option.
“It’s one of the hardest things people can do,” says Ed Boltz, a Raleigh/Durham, N.C.-based bankruptcy attorney and past president of the National Association of Consumer Bankruptcy Attorneys . But if you are unable to repay your way out of debt, it’s better to file sooner rather than later. Filing for bankruptcy can erase or help you repay most debts, except for back taxes, child support, student loans and a few other types . It can also protect you from aggressive bill collectors while you’re working out a debt relief plan.
Bankruptcy may be the right choice for you if
- You don’t have enough money left to pay down debts after you meet your basic expenses.
- You’re regularly using credit cards to pay for food, gas, utility bills and other necessities .
- You’re paying your credit card bills with another credit card.
- Your wages are being garnished to pay debts, leaving you unable to meet basic expenses.
- You might be able to save your home by declaring bankruptcy.
- You’re working several jobs and unable to make a dent in your debt, and a credit counseling agency couldn’t work out a repayment plan for you.
- You’re so stressed out financially that it’s undermining your health and relationships.
Bankruptcy may be the wrong choice for you if
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Understanding Interest Is In Your Best Interest
FAFSA gives you multiple loans per year and semester, Each loan they give has varying interest rates. Theinterest rate is the cost of borrowing money, its how the loan provider makes a profit from giving you a loan. Its given in a percentage and compounds over time. The longer you have a balance the more interest you will pay.
The interest rates on federal student loans are generally from 4%-7% and the longer your payment term is, the more money you will dish out in interest. Your loan may be $25k but if your interest rate is 5% and you pay the average monthly payment of $280 a month you’ll actually end up paying $6,330 additional in interest. Do you want to be average? If you pay $500 a month you only pay $3,092 in additional interest.
to calculate the additional interest youll pay on your student loans.
What If I Dont Qualify To Discharge Student Loans Through Bankruptcy
You have many options available to you if you are having a hard time repaying your student loans:
You can see if you qualify for a Repayment Assistance Plan to reduce your monthly payments or a Revision of Terms Plan to give you more time to repay your loans. We provide more details for managing your student debt on our Student Loan Debt page.
Our local debt professionals will be happy to review all of the options available to you. We will personally guide you through all the methods and steps you can take to eliminate your student debt. Request a call today for a free appointment, with no obligations.
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