The Totality Of Circumstances Test
A few states use the “totality of the circumstances” test. It might seem that this is an easier standard to meet because it doesn’t consider whether youve made a good-faith effort to repay your loans, such as consistent attempts to obtain employment, maximize income, and minimize expenses. However, the totality of the circumstances test also includes an any other relevant facts and circumstances component that could be broadly interpreted.
Under either standard, the bar to clear is high, especially for federal student loans, for which the government specifically states that the burden of proof is on the debtor to prove undue hardship.
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.
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.
Can Bankruptcy Help With My Student Loan
You can drop your debt without dropping out of class. Bankruptcy can work in tandem with a student loan rehabilitation program, private student loans, and income-based repayment plans. Bankruptcy alone canât get rid of your student debt, but it can relieve you of other debt, such as credit card debt and medical billsâdebt that prevents you from paying down your student debt. You can talk to an attorney about filing bankruptcy or you can file bankruptcy on your own. If you decide to file for Chapter 7 bankruptcy, Upsolveâs web app is like your personal teacher guiding you along the way as you complete your bankruptcy forms for filing with the court. If youâre interested in learning more about bankruptcy, visit Upsolveâs Learning Center for more information on debt relief and learn how to get a clean slate in life without the burden of debt.
Whether You Can Get Student Loans After Bankruptcy Depends On The Type Of Loan
By Kathleen Michon, Attorney
Whether a prior bankruptcy will affect your ability to getnew student loans depends on the type of loan you are applying for. Your credit plays a role in eligibility for federalPLUS loans and private student loans, but it’s not considered for other typesof federal loans and grants.
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How To Use Chapter 13 To Manage Student Loan Payments
Even if you can’t use bankruptcy to eliminate your student loans, you might be able use Chapter 13 bankruptcy to reduce the amount you pay on your student loans for the length of your bankruptcy case, usually 36 to 60 months.
In Chapter 13 case, you get to keep your property. In return, you must devote your disposable income to the full or partial repayment of your unsecured debts over the life of your plan. In addition to unsecured debts, you can pay some secured debts like car payments, through the Chapter 13 plan, too.
You do this by making a monthly payment to your Chapter 13 trustee. The amount of this payment depends on the property you own, your income, and your reasonable and necessary expenses. Most filers must pay their “disposable income” toward unsecured debt for the repayment period. The trustee distributes this payment among your unsecured creditors, on a pro rata basis.
Suppose you make $3,000 per month. Your costs for rent, car payment, utilities, food, and other expenses total $2,700 per month. That leaves a disposable income of $300. If you were not in Chapter 13, you would also be making payments of $400 in student loans and another $300 in credit card minimums and medical bills. You would be in the hole each month by at least $400.
Calculating your Chapter 13 plan payment is more complicated than the above example. Talk to a bankruptcy attorney to find out how much your Chapter 13 plan payment would be.
How Current Student Debt Is Handled In Chapter 13 Bankruptcy
Will declaring bankruptcy cancel out my accumulated student debt?;Most current student loans are not dischargeable in the Chapter 13 bankruptcy process. If you;qualify for Chapter 13, an automatic stay is put in place to protect you from credit collectors. Then, debt is bundled together and a repayment plan is set up to help you successfully work towards completion. When the repayment plan is complete , most nonpriority unsecured;debt is discharged.
Though both federal and private student loans are considered nonpriority student debt, they are not automatically discharged through bankruptcy.;The only way these loans can be discharged is by proving to the bankruptcy court that repayment would cause you undue hardship. This term describes a situation in which the debtor:
- Has already made a strong effort to pay back the student loan before filing for bankruptcy.
- If forced to repay the debt, could not sustain a minimal standard of living.
- Would struggle financially for an extended amount of time during the repayment period.
Proving undue hardship is extremely difficult and bankruptcy judges rarely grant this type of relief. Thats why, for most cases, student loans are considered non-dischargeable.
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What Does It Mean To Declare Bankruptcy
Bankruptcy is a way of clearing your debtswhich adversely affects your creditthrough the court system, whose job is to sort through your assets and determine what debts to forgive that youre unable to pay.
Discharge In Bankruptcy Student Loan Borrowers Assistance
Student loans are difficult, but not impossible, to discharge in bankruptcy. To do so, you must show that payment of the debt will impose an undue hardship on;
What happens to my loan if the bankruptcy court determines repayment would cause undue hardship? · Your loan may be fully discharged, and you will not have to;
For federal student loans and grants other than PLUS loans, the government will not consider your creditworthiness in determining your eligibility. This means;
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How To File For Student Loan Bankruptcy Investopedia
The bankruptcy court will decide how much you will pay each of your creditors each month. If you have other debts that are legally categorized as a higher;What Is Student Loan Bankruptcy? · Filing for Student Loan Bankruptcy
How Bankruptcy Affects Student Loans Filing bankruptcy does not prevent you from getting federal student loans or other types of federal financial aid. Rating: 5 · 1,439 reviews · Free · Finance
Nov 18, 2020 Under current law, student loans cant be claimed in a bankruptcy except in certain circumstances. The only way these loans can be discharged is;
How To Get A Loan After Bankruptcy
As discussed above, a secured credit card is a great way to get your feet wet with credit after bankruptcy. After enough time has passed and you have a solid number of payments that have been recorded with the credit bureau, you might begin to consider unsecured credit cards. Make sure you start off small and only take out enough credit that you can financially manage. You want to avoid going backward in your credit-building journey racking up more debt on your credit card will only hold you back from bankruptcy recovery.;
Getting a mortgage after bankruptcy can be difficult. Luckily, there are a few factors that lenders consider that may persuade them into lending you a mortgage:
Bankruptcy Discharged For at Least Two Years
Bankruptcy discharge occurs when the borrower in question has been legally released from their debt obligations, with a couple of exceptions. You are automatically discharged from bankruptcy nine months after filing, provided that the following criteria are met:
- This was your first bankruptcy
- Youve attended two financial counselling sessions, standardized by the Office of the Superintendent of Bankruptcy
- No creditors are opposing the discharge
Most mortgage lenders will want to see that at least 2 years have passed since you were discharged from bankruptcy.;
Check out what documents youll need to get a mortgage.
Access to New Credit
Better Credit Score
High Down Payment
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How To Get A Graduate Student Loan After Bankruptcy
Graduate student loan lenders will be hesitant to extend you funding if you have entered bankruptcy in the past. There are a few mitigating factors that could reduce the impact on your ability to get a loan. If these are not present, though, then you will have to elect new strategies to attempt to gain financing, and these strategies will often mean greater risk to you and a more expensive loan.
The most important mitigating factors that may lessen the impact of your bankruptcy are the time that has elapsed and the reason for bankruptcy. If more than five years have passed, you will already note your credit score has recovered significantly. If more than 10 years have elapsed, the bankruptcy may not even appear on your credit score, depending on the state where you reside. However, if the bankruptcy was filed in court, then it will appear in a background check, even if it was discharged or canceled. After 10 years, though, lenders will be less likely to deny you on the grounds of the bankruptcy alone.
Strategies to Secure a Loan
If you do not have collateral to secure a loan, you may need to seek a high risk loan for graduate school. In this case, you will have to use a non traditional lender, meaning not a bank. You may also have to pay higher interest rates and agree to make large monthly payments while you are still a student.
Lending Requirements After Bankruptcy
You can try shopping around for a lender that will take on post-bankruptcy refinances. Youll find some variation among the lenders. For example,;Earnest Student Loans and;CommonBond Student Loans;are among the lenders that do not consider refinancing student loans until the bankruptcy has been wiped from the borrowers credit report. Under their eligibility requirements, it means waiting at least seven years in most cases.
College Ave Student Loans;might consider refinancing on a case-by-case basis if the borrower has a strong record of financial responsibility in the immediate years following a bankruptcy. Try using the prequalification tool before you apply. Using this tool will not affect your credit score.
Laurel Road Student Loan Refinancing might consider applicants, case-by-case, who have a strong record of financial responsibility in the immediate years following a bankruptcy. In the time following your bankruptcy, it can help to have a solid employment history and to have worked to rebuild your credit.
If its been a few years since your bankruptcy, consider checking with;Massachusetts Educational Financing Authority. It requires at least 60 months post-bankruptcy before considering applicants for refinance loans.
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Bankruptcy And Student Loans: What Do You Need To Know
Student loans are in the news a lot these days. The new administration is weighing options for expanding loan forgiveness programs and even forgiving $10,000 of student loans outright.
There have been a few articles recently about bankruptcy and student loans recently. In this article we discuss what you need to know about student loans and bankruptcy.
Is Bankruptcy The Right Choice For You
Theres no doubt bankruptcy is a last resort option.
Its 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, its 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 youre working out a debt relief plan.
Bankruptcy may be the right choice for you if
- You dont have enough money left to pay down debts after you meet your basic expenses.
- Youre regularly using credit cards to pay for food, gas, utility bills and other necessities .
- Youre 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.
- Youre working several jobs and unable to make a dent in your debt, and a credit counseling agency couldnt work out a repayment plan for you.
- Youre so stressed out financially that its undermining your health and relationships.
Bankruptcy may be the wrong choice for you if
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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.
How Bankruptcy Impacts Your Ability To Get Loans To Pay For A Childs Education
I need to take out loans to cover my childs college tuition; can I borrow money after bankruptcy?;To tell you the truth, it will be difficult to get approved for a loan. Parents requesting;PLUS loans;may not be eligible because of poor credit history.
There is some good news. If you had a loan discharged by bankruptcy in the past 5 years, a PLUS loan may be attainable if someone with good credit also signs off on it. Also, if a parent is turned down by lenders, their child may be able to secure more borrowed money through;Stafford loans.
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Alternatives To Student Loan Bankruptcy
Bankruptcy is not the best fit for everyone. Here are some options to consider to help you deal with your student loan debt:
Refinance for a lower interest rate. Depending on your student loan balance, credit score, and income, you may be able to find a lender that offers a much lower interest rate. While refinancing won’t get rid of the debt, the lower interest rate may make it easier to pay off your loans faster.
Request a deferment or forbearance. If you’re struggling with your private student loans, ask for a deferment or forbearance to give you some relief. You can also ask your student loan servicer if they offer interest rate reduction programs and other flexible repayment options.
Apply for an income-driven repayment plan.IDR Plans are affordable repayment plans offered by the federal government to federal student loan borrowers. These plans allow you to pay 10 to 15% of your discretionary income for 20 to 25 years. Any loan balance remaining after you make your final payment will be forgiven.
Check eligibility for discharges. The federal government and some private lenders will discharge your student loan debt due to total and permanent disability. You may also be entitled to a discharge if your school misrepresented your ability to transfer credits or get a job or if the school closed.
Our Pennsylvania Bankruptcy Attorneys Can Help Relieve You Of Debt
If youre;thinking about filing for Chapter 13 or Chapter 7 bankruptcy in Pennsylvania, a;bankruptcy lawyer of Young, Marr & Associates can help you understand your options, rights, and responsibilities. ;To start discussing whether bankruptcy is right for you in a free and completely private legal consultation, call our law offices today at 701-6519 in Pennsylvania.
Bankruptcy Resource Center
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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.