Stop A Foreclosure Repossession Or Eviction
The automatic stay will stop these actions as long as theyre still pending. Once complete, bankruptcy wont help.
- Evictions. An eviction thats still in the litigation process will come to a halt after a bankruptcy filing. But the stay will likely be temporary. Keep in mind that if your landlord already has an eviction judgment against you, bankruptcy wont help in the majority of states. Learn more about evictions and the automatic stay.
- Foreclosure and repossession. Although the automatic stay will stop a foreclosure or repossession, filing for Chapter 7 wont help you keep the property. If you cant bring the account current, youll lose the house or car once the stay lifts. By contrast, Chapter 13 has a mechanism that will allow you to catch up on past payments so you can keep the asset. Find out more about bankruptcys automatic stay and foreclosure and car repossession and bankruptcy.
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Wipe Out Credit Card Debt And Most Other Nonpriority Unsecured Debts
Bankruptcy is very good at wiping out unsecured , medical bills, overdue utility payments, personal loans, gym contracts. In fact, it can wipe out most nonpriority unsecured debts other than school loans.
The debt is unsecured if you didnt promise to give back the purchased property if you didnt pay the bill. By contrast, if you have a secured credit card, youll have to give the purchased item back. Jewelry, electronics, computers, furniture, and large appliances are often secured debts. You can find out by reading the receipt or credit contract.
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Above And Beyond Normal Circumstances
The second factor that courts will take into account is whether you have circumstances that are above and beyond normal circumstances and whether these circumstances will extend throughout a significant portion of the term of the loan. This can be tough to show in some cases because it can be subjective and speculative.
Some of the potential circumstances that courts have seen as above and beyond normal circumstances include serious mental or physical disability of the individual or the individuals dependents which prevents employment and circumstances relating to an individuals employment opportunities including poor quality of education, maximized income potential in the chosen education field, and limited remaining years in the individuals work life.
As stated above, these circumstances must extend throughout a significant portion of the loan. They can not simply be a temporary situation that is likely to change in the near future. Due to the subjective nature of this factor, you will require the submission of evidence to prove your circumstances.
When you are trying to discharge student loans in bankruptcy, it is critical to show your circumstances are above and beyond normal circumstances. Our experienced student loan lawyers are skilled in putting together the best argument and supporting evidence, including expert reports, etc., to show that your circumstances are above and beyond normal circumstances.
Private Student Loans Held By 26 Million Borrowers Could Be Discharged In Federal Court According To The Student Borrower Protection Center
A new report suggests that up to $50 billion in loans students used for their education could be discharged in bankruptcy.
Hello and welcome back to MarketWatchs Extra Credit column, a look at the news through the lens of debt.
One oft-derided, pernicious aspect of student loans is that unlike credit card debt or an auto loan, they can follow a borrower forever because theyre impossible to discharge in bankruptcy at least according to conventional wisdom.
This week, were taking a look at evidence that suggests thats not always the case. A new report indicates that as much as $50 billion in debt, colloquially referred to as private student loans and held by 2.6 million borrowers, could actually be wiped away in bankruptcy court. The findings come from an analysis published Thursday by the Student Borrower Protection Center, an advocacy group.
Over the past several years, attorneys, legal scholars and even bankruptcy judges have started to think more creatively about whether debt borrowers took on in the course of their education is eligible for discharge in bankruptcy. One attorney in particular, Austin Smith, has made a career of challenging the notion that all student debt stays with a borrower following a personal bankruptcy filing. So far, three courts of appeals have sided with Smith, indicating his clients debts may be eligible for discharge in bankruptcy.
Estimate provides a window, but the authors would like to see more transparency around this data
Why Student Loan Discharge In Bankruptcy Poses A Challenge
Heres why student loans are so onerous to get rid of in a bankruptcy filing:
Its cost-prohibitive. As Webber says, the whole process is expensive for borrowers who can expect to pay several thousand dollars for filing and attorneys fees.
Bankruptcy courts are notoriously stringent. After filing for bankruptcy, a second action, an Adversary Proceeding, must be filed to ask the court to find that the debt would prove an “undue hardship” to repay. Then, borrowers have to prove they meet the standards of “undue hardship,” a concept thats left to bankruptcy judges to interpret.
The undue hardship standard is especially difficult for federal student loan borrowers to prove due to the safety nets offered to those borrowers, such as payment pauses and repayment plans.
To meet the standard, cases typically must pass the “Brunner test,” named for a student who attempted to discharge her student loans in bankruptcy less than a year after earning her master’s degree .
To pass the Brunner test, loans must meet these conditions:
Payments would keep you from maintaining a minimal standard of living.
Youre unlikely to earn enough money to make payments on your loans in the foreseeable future, usually due to a disability.
Youve already made good faith efforts to repay your loans such as making some payments or negotiating a lower payment plan.
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Are Private Student Loans Exempt Bankruptcy
Consensus Builds That Some Private Student Loans Can Be Discharged in Bankruptcy. 2021), affirmed a New York federal courts ruling that private student loans are not explicitly exempt from the discharge in a chapter 7 bankruptcy, opening the door for more borrowers seeking to obtain relief from educational debt.
What Happens To Debt You Cant Afford
Lenders come down pretty hard on borrowers who refuse to pay their debts. They dont care if you claim to have forgotten and will do everything in their power to help you remember. However, if you can no longer afford to make your repayments and have a genuine excuse they will be a little more sympathetic.
All student loan lenders offer some kind of hardship programa grace period, a repayment program, or anything else that will help. Contact them in the first instance, discuss your options, and work with them to find a solution.
If all else fails, and you find yourself with more debts than you can handle, look into debt settlement, debt consolidation, or bankruptcy. There are more debt relief options than ever before, and things are never as bad or as hopeless as they seem.
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Private Student Loans Bankruptcy: Are They Dischargeable
You may have heard that you can’t file bankruptcy for student loans. But that’s not true. It is possible to discharge student loans in bankruptcy. Still, the process is more burdensome than wiping out credit card debt, medical bills, etc.
Federal student loans are less likely to be discharged in bankruptcy because they offer flexible, income-based repayment plans, deferments, forbearances, and loan forgiveness. Those things make it challenging for student loan borrowers to prove they have an undue hardship.
But private student loan lenders don’t offer the same types of benefits as the Department of Education. As a result, it’s often easier to file bankruptcy on private student loans. Plus, there’s new bankruptcy law from cases and proposed legislation that may eventually allow borrowers to get rid of their private loans without having to jump through extra hoops.
Disclaimer: Although I am a student loan lawyer, this article contains general information and should not be taken as legal advice. If you want legal advice that pertains to your specific situation, you should schedule a free 10-minute consultationwith me.
Is Your Private Student Loan A Qualified Educational Loan
As stated above, if you have a private student loan, you may have other arguments available in addition to undue hardship. You can discharge private student loans in bankruptcy in a number of other ways.
There is a presumption that student loans in bankruptcy are non-dischargeable if they meet the statutory requirements. For private student loans, this requires the loan to be a qualified educational loan.
To be a qualified education loan, a private student loan must be:
- For an eligible student
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How Long Will The Adversary Proceeding Take For Federal Student Loans
As stated above, the adversary proceeding works much like a lawsuit in that it starts with a complaint and continues through a trial and appeal. How long this takes may depend on whether you have a federal student loan or a private student loan.
When dealing with federal student loans, you can expect the US government to fight the case to the end and there will generally be no settlement of any value to you offered by the federal government. As such, the adversary proceeding will almost always require proceeding through the summary judgment phase at the very least. This can take up to one year to complete. If the case requires a trial or goes through an appeal, you can expect this timeline to increase.
On the other hand, the odds of settling your case prior to trial are much higher with private student loans. These lenders tend to recognize that they may lose the trial. As a result, they may be more willing to negotiate than the government would be.
Every case is different and a student loan lawyer can help give you a better idea of the timeline specific to your situation.
You Must Respond To Lawsuits Quickly
If you dont file and serve our response in the time provided for under state law then you will risk a default judgment.
In California, You have 30 days AFTER the date you are served to file a response with the court. The 30 days include weekend days and court holidays. If the last day falls on a day that the court is closed, you have until the next day that the court is open. If you were served by substituted service, meaning the summons and complaint were given to someone else in your household or place of work, and another copy was mailed to you, you have 40 days from the date of the mailing to file your response.
In New York, if you were given the court papers in hand then your response must be filed and served within 20 days of the date on which the process server files his or her affidavit stating you were served. If you were served in any other way, you must respond within 30 days.
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Managing Student Loan Problems
KNOW YOUR STUDENT LOANS All federal loans are listed at the NSLDS Website. You can identify private student loans from your credit report . It may be necessary to call the schools to get this information. Private student loans are installment loans with a bank.
PRIVATE STUDENT LOAN OPTIONS No reduced or income-based payment options are available. If you are current, continue to pay and stay current. You could also try to refinance to a lower interest rate with SoFi and roll private and federal loans together. If you are not current, you could call the bank and try to get back into repayment status with them. You may also try to wait out the statute of limitations . Note, there is no statute of limitations for federal loans. An interesting idea you might consider is plan a strategic default, wait until when or if private lender sues, and carefully evaluate the validity of the underlying contract and documentation. Whereas you might not be able to eliminate student loan debt in bankruptcy, your attorney has a chance of winning a lawsuit known as NCT lawsuit, National Collegiate Student Loan Trusts. Billions in overdue private student loan debt can be erased because of missing paperwork.
KNOW YOUR REPAYMENT OPTIONS FOR FEDERAL LOANS IN GOOD STANDING You can do this yourself with the use of two excellent websites: Student Aid Website and NSLDS. See discussion below.
How Do I Challenge My Student Loan Debt In Bankruptcy
Once you have filed for bankruptcy or we have re-opened a prior bankruptcy, the next step to discharge student loans in bankruptcy is to file a separate action within the bankruptcy case, known as an adversary proceeding. This adversary proceeding is similar to a lawsuit in that it will start with the filing of a complaint and can proceed through a trial and appeal, if necessary.
This process, within a bankruptcy, can be very difficult and our highly specialized student loan lawyers are some of the few attorneys that understand how to best proceed with challenging student debt through an adversary proceeding.
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Is There A Student Loan Statute Of Limitations
There is no statute of limitations for federal student loans. That means you can be sued at any point for not paying your loans, as long as youre alive.
There is a statute of limitations for private student loans, which is set by individual states and generally ranges from three to 10 years. But even this limit just means the lender cant sue you anymoreit doesnt mean the loan goes away or they stop trying to collect what is owed.
Can My Inheritance Be Paid To Someone Else
If you have ever wondered whether you have to accept something that has been left to you in a Will, the answer is no, you dont. You can use a tool call a Deed of Variation. A Deed of Variation is a document that is set up by a beneficiary if they want to pass on their share of the inheritance to someone else.
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Bankruptcy Can Still Be A Useful Tool For Relief
No matter your current student loan situation, there are always options available. Even though your student loans most likely cannot be discharged in bankruptcy, it could still make sense to file if you have a lot of other unsecured debt as well, such as credit card debt or medical debt.
Oftentimes, people who come to see me are working really hard to pay down their credit card debt, Culp says. They’re throwing every extra penny at that. And that doesn’t really make any sense, because credit card debt goes away in bankruptcy, and student loan debt does not.
If you have private student loans and cant pay them, a private lender might sue you to try to collect. Bankruptcy can stop that process and give struggling borrowers some breathing room, Culp says.
For borrowers who have a co-signer or guarantor on their student loan debts, bankruptcy may be able to relieve pressure being put on co-debtors. Theres a particular provision in the Chapter 13 part of the Bankruptcy Code called the co-debtor stay, Culp says. It prohibits the creditor from contacting co-debtors on student loan debt. So that can be a big, big help right there.
And, if your loan is not a qualified education loan as described by statute, it can be discharged through bankruptcy. Some examples might be loans for a for-profit school that closed while you were a student, or some types of trade schools.
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.
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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.
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