Can I Include A Parent Plus Loan In A Chapter 13 Bankruptcy
- Posted on Oct 11, 2012
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- on Oct 11, 2012
Present law makes this result, as your attorney and my colleague has reported.Unless you can squeeze out some payments from your budget after the plan payment is made, you are stuck.Congress would have to change the law, currently unsecured creditors enjoy a preference to your paying back a student loan.If your plan is a 100% dividend return to unsecured creditors, any extra income you have can be used to pay student loans, or to anything else you want.
General legal advice is offered for educational purposes only. A consultation with a qualified attorney is required to determine specific legal advice as to your situation and applicable law. We are a debt relief agency and we help people file for relief under the bankruptcy laws.
Bankruptcy Reform & Fairness For Struggling Students Acts
With all of the outlets purporting the idea, one must wonder where the notion that student loans cant be discharged in bankruptcy originates from. The most likely answer is that this mystery developed almost like a game of telephone from the perception that its nearly impossible to do so, which itself stems from a pair of key pieces of legislation.
In 1978, Congress passed the Bankruptcy Reform Act, which contained a provision limiting the discharge of student loans obtained through federally-backed programs or through non-profit institutions unless the borrower showed undue hardship or the loan came due at least seven years prior to filing . Disallowing federal loan discharges made sense not only because it protected taxpayers, who ultimately foot the bill for federal loans, but also given that federal loans arent credit underwritten. In other words, proving your responsibility as a consumer isnt a prerequisite for getting a federal student loan, and with an easy path to non-payment defaults would come in droves.
Sure, people have claimed in the past that limiting the ability of borrowers to discharge private student loans in bankruptcy
Preparing For The Adversary Proceeding
The court will look at a number of factors in determining undue hardship. One factor it will likely consider is whether you made a good-faith effort to repay your loans. That good-faith effort may include trying to rearrange your payment schedule. If you havent already, contact your loan servicer and ask about alternative payment plans. You could end up reducing your monthly payment amount or even postponing making payments altogether.
If your lender refuses to adjust or pause your payments, document whom you spoke to and the date and time of the call. You might need to use this information as evidence in court.
You may also need to present information on your income, budget and debt burden during the adversary proceeding. In most cases, youll have already collected this material as part of the overall bankruptcy filing process.
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What Is A Qualified Education Loan
Student loans are protected against bankruptcy by law unless eligibility is proven otherwise. However, many loans can be referred to as student loans without meeting the right requirements. According to bankruptcy attorney Craig Andresen, in order for a loan to be qualified as a student loan:
it must have been made under a government or nonprofit student loan program, or it must be a qualified educational loan under section 221 of the Internal Revenue Code, for attending an eligible education institution as defined in section 221 of the Internal Revenue Code, and incurred for costs of attendance as defined in section 472 of the Higher Education Act.
Andresen says, Perhaps you were not an eligible student at the time the private student loan was made to you or maybe the loan was not incurred to pay qualified education expenses or perhaps the loan was not for attendance at an eligible education institution because the school was not accredited under Title IV of the Higher Education Act. All these are requirements imposed by section 221 of the Internal Revenue Code. Failure of a private student loan to meet any of these criteria means that the loan is fully dischargeable, because it would not qualify under section 523 of the bankruptcy law.
The Undue Hardship Exception
To have your student loan discharged in bankruptcy, you must demonstrate that it would be an undue hardship for you to pay them. The test for determining undue hardship varies between courts. Also, many courts look at the undue hardship test as all or nothingeither you qualify to get the whole loan discharged, or you don’t. Other courts have discharged a portion of a debtor’s student loan.
Regardless of the test used, most courts are reluctant to discharge a student loan. However, if you have very low income or your loan is from a for-profit trade school, you might have a better chance.
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How Bankruptcy Impacts Your Ability To Get A Student Loan In The Future
What if I wait until after the Chapter 13 process is complete to apply for a student loan? The same general rules from above apply here. Federal student loans cannot be denied just because of your bankruptcy history. As long as there is no history of default or delinquency with previous or current federal loans, you are still eligible for new federal student aid. If youre struggling with repayment, its important to set up a plan with your lender to get current before trying to take out more loans.
Private financial aid lenders, on the other hand, will likely consider bankruptcy history as evidence of unreliability for repaying borrowed money in the future.
In Chapter 13 Bankruptcy You May Be Able Reduce Or Delay Student Loan Payments During Your Repayment Period
By Baran Bulkat, Attorney
Except in rare circumstances, student loans cannot be discharged inbankruptcy. But if you are struggling to make your student loanpayments, filing for Chapter 13 bankruptcy can allow you to delay orreduce your monthly obligations. Read on to learn more about how Chapter13 bankruptcy can help you manage your student loan debt.
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How To Pay Back Your Student Loan
If you have a federal student loan, that loan will be assigned to a student loan servicer. The federal government works with 11 different servicers, including Navient and FedLoan Servicing. If youâre not sure who your servicer is, you can find out by calling the Federal Student Aid Information Center at 1-800-433-3243 or by visiting your Federal Student Aid account dashboard. Youâll make your loan payments directly to your servicer. You can usually do this online, over the phone, or by mail. If you sign up for automatic payments from your checking account, some servicers will offer you a discount.
If you have a private loan, youâll have to check with your lender about how to make payments. You may make your payments directly to the lender, or the lender may assign your loans to a servicer. In both cases, payments are generally due monthly.
Federal student loans have several payment plan options you can choose from. Under the standard repayment plan, youâll be given a fixed monthly payment that will pay off your loan in 10 years. There are other plans you can choose from that usually have lower monthly payments but will take longer to repay. Some of these plans are based on a percentage of your income, which means if your income is very low, you may not have to make any payment at all during those months.
This Man Got $221000 Of Student Loans Discharged In Bankruptcy
Can you now discharge your student loans in bankruptcy?
Heres what you need to know.
Student Loans: Bankruptcy
A Navy veteran will have $220,000 of his student loans discharged, even though he is not unemployable, not disabled or wasnt defrauded. A U.S. bankruptcy judge in New York, Cecilia G. Morris, ruled that Kevin J. Rosenberg will not have to repay his student loan debt because it will impose an undue financial hardship.
According the Wall Street Journal, Rosenberg borrowed $116,500 of student loans between 1993 and 2004 to earn a bachelors degree from the University of Arizona and a law degree from Cardozo Law School at Yeshiva University. He filed for Chapter 7 bankruptcy in 2018 and asked the court last June to discharge his student loan debt, which had grown to $221,400, including interest. At the time of filing, Rosenbergs annual salary was $37,600, and after living and debt expenses, his monthly net loss was $1,500.
Traditionally, unlike mortgages or , student loans cannot be discharged in bankruptcy. There are exceptions, however, namely if certain conditions regarding financial hardship are met.
The Brunner Test: Financial Hardship
Those conditions are reflected in the Brunner test, which is the legal test in all circuit courts, except the 8th circuit and 1st circuit. The 8th circuit uses a totality of circumstances, which is similar to Brunner, while the 1st circuit has yet to declare a standard.
In plain English, the Brunner standard says:
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So What Really Constitutes Undue Hardship
Those cases where borrowers have succeeded in having their student loans discharged are insightful. Specifically, a court might agree that repaying your loans would be an undue hardship if you cant maintain a minimal standard of living for yourself and any dependents, if the hardship will continue throughout the loans repayment period, and if youve sincerely tried to repay your loans before filing bankruptcy.
What does a court consider a minimal standard of living? Again, case law and some common sense can be a guide. It might mean:
- Your income has been below the federal poverty level for several years and doesnt show signs of improving.
- Youre on public assistance or dependent on a family member.
- You have a debilitating mental or physical illness or permanent injury.
- You have a child with a serious illness who requires round-the-clock care.
- Divorce reduced your family income with no hope of it returning to its previous level.
- Disability checks are your only source of income.
- You depend on public assistance to support your children.
- You support a spouse who was seriously and permanently injured in a car accident or who has developed a total disability.
Claiming Undue Hardship In A Student Loan Bankruptcy Case
A Chapter 7 bankruptcy alone will not wipe away your student loan debt. In order to stop collections altogether, you will have to file a petition for a determination of undue hardship. Claiming undue hardship means that repaying your loan is too difficult and too expensive like a weight that moves the scale from struggling to suffering. This determination will take place in an adversary proceeding in bankruptcy court.
There are three criteria you must meet to successfully claim undue hardship in a student loan bankruptcy case:
This three-step measurement is also known as the Brunner Test, and if all requirements are met, your lender will no longer be able to collect loan payments from you.
If the determination of undue hardship is unsuccessful, you can still apply for Chapter 13 bankruptcy, which allows the court, rather than the lender, to determine the monthly size of repayments. These payments will often be smaller and allow for more flexibility for several years until repayments return back to normal or the borrower petitions once again for undue hardship.
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Student Loans In Bankruptcy
There are a lot of myths and misconceptions about whether you can discharge student loans in bankruptcy. Many people believe that you cannot discharge student loans in bankruptcy. Further, many bankruptcy attorneys will not even attempt to have discharge student loans in bankruptcy. This is where our experienced student loan lawyers come in.
The truth is you can discharge student loans in bankruptcy. The process can be difficult, but the possibility of a discharge should not be ignored any longer. Only 0.1% of people with student loans in bankruptcy even ask to have their student loans discharged. Of those that do, nearly 40% are successful, according to a 2011 study.
The myth that you cannot discharge student loans in bankruptcy has continued to grow over the years. According to one bankruptcy judge, the undue hardship standard has become a quasi-standard of mythic proportions so much so that most people believe it impossible to discharge student loans in bankruptcy. Thankfully, the judge went on to say that she will not participate in perpetuating these myths.
If youre curious about your loans, we offer a FREE student loan discharge analysis. Just answer some questions about your loans and our student loan attorney can analyze whether your loans may be dischargeable in bankruptcy!
Can You Discharge Student Loans Through Bankruptcy
According to U.S. News & World Report, there is a common misconception that bankruptcy filings cannot include student loans. In fact, bankruptcy can discharge these loans, provided filers can exhibit undue financial hardship.
While it is more challenging to discharge student loans through bankruptcy, it is not impossible. Here are a few important points to keep in mind.
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Denied A Parent Plus Loan
If you are found to have adverse credit history, you may still be able to borrow from the Parent PLUS Loan program. You have two options: submit a successful extenuating circumstances appeal for an exceptional circumstance, or reapply with a cosigner who does not have an adverse credit history.
If you want to appeal the decision, you must submit a request to appeal the decision and provide information regarding your denial decision. If successful, you may be required to completed loan counseling prior to receiving the Parent PLUS loan funds.
If you would like to apply with a cosigner who does not have adverse credit, the cosigner would need to complete an endorser application.
Now, if neither of these options works for you, your denial of a Parent PLUS Loan would actually make your dependent undergraduate student eligible for independent undergraduate student Stafford loan limits. Meaning, they will have access to additional loan funds they can borrow under their name to help pay their own college costs.
Why Some Object To Allowing More Student Loan Discharges In Bankruptcy
Not everyone agrees that student loan discharge in bankruptcy should be legally allowed more often. Two of the most common reasons that people give for why the Education Department should continue to oppose student loan discharge in bankruptcy as often as it has in the past are:
- The availability of income-driven repayment plans
- The legal ability to use Social Security offsets to cover student loan debts instead
But, as we explain below, both of these arguments break down at some level. Lets take a closer look.
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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.
Can Student Loans Be Discharged In Bankruptcy
Except in rare situations, bankruptcy law states that neither federal loans nor private student loans are eligible for a bankruptcy discharge. To discharge a student loan in bankruptcy, you must file an adversarial proceeding . An AP is a lawsuit filed within the bankruptcy court, after a bankruptcy case has already been filed. APs can result in full trials before the bankruptcy judge. APs are very different from normal bankruptcy proceedings.
To file an AP, you may need a bankruptcy attorney that is experienced and skilled in litigation. Many bankruptcy attorneys only want to file straightforward bankruptcies and rarely file APs. You need to be careful in choosing an attorney if you’re going to try to discharge a student loan. Ask any prospective attorney if they have filed APs in the past. Even if you file an AP, you will only be successful in securing a discharge for a student loan if you pass the Brunner Test.
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When Do Student Loans Qualify Under Undue Hardship
The criteria for demonstrating undue hardship can vary from court to court, and meeting the standard in any court can be difficult. However, there are two tests courts generally use to determine whether you’re experiencing undue hardship from your student loans. Depending on the court, there may be other tests that are used to determine whether you qualify to include student loans in your bankruptcy discharge, but these are the most common: