You’ve Got Options If You Were Denied Pslf
If your application for Public Service Loan Forgiveness was denied, you may be able to receive loan forgiveness under the Temporary Expanded Public Service Loan Forgiveness opportunity.
As part of this opportunity, the Department of Education reconsiders your eligibility using an expanded list of qualifying repayment plans.
This TEPSLF opportunity is temporary, has limited funding, and will be provided on a first come, first served basis. Once all of the funds are used, the TEPSLF opportunity will end.
Visit StudentAid.gov for detailed information on how to be reconsidered for loan forgiveness. While there, you can also access the PSLF Help Tool and/or download the Public Service Loan Forgiveness and Temporary Expanded PSLF Certification & Application .
You Have To Fill Out The Free Application For Federal Student Aid
Before you can receive federal student loans, you must fill out the Free Application for Federal Student Aid . Federal student loans are limited to a set amount each year. The amount you can borrow is determined from your FAFSA. Youâll need to submit a new FAFSA every year.
Sometimes federal student loan money isnât enough to cover rent and other costs. Private student loans may be an option to bridge this gap. Private lenders will look at your credit score when determining eligibility. If you arenât able to qualify for private student loans on your own, you can consider whether having a co-signer is right for you. A co-signer is another person that will sign on to the loan with you. If you default on your monthly payments, the loan lender could collect from the co-signer instead.
Federal and private student loans are disbursed directly to your schoolâs financial aid office. The school will pay itself for costs like tuition, fees, and campus housing. The leftover loan amount is then dispersed to you. You can deposit your student loan money into your bank account and use those funds to pay for living expenses like rent or a security deposit.
How To Determine Whether Filing Bankruptcy Will Help With Student Loan Debt
Different formulas are used specifically to test for your personal dischargeability of student loans ? the most common of which is the ?Brunner Test,? which is used by 9 of the 13 judicial circuit courts. ?Prior to 2005, the bankruptcy law allowed individuals to eliminate student loan debt much easier than it does now. ?The changes made to the bankruptcy code in 2005 placed restrictions on who can discharge their student loan debt when they file for bankruptcy. ?Most individuals don?t file for bankruptcy based solely on student loans, but in some instances, the amount of debt they carry including student loans is crushing, and if they prove the right elements, there is some hope they may qualify for a student loan bankruptcy.
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Why Student Loan Debt Is Treated Differently
Over the years, Congress has decided that good reasons exist to stop people from getting rid of their debts by declaring bankruptcy. For instance, Congress has made child support, alimony, certain tax debts, and criminal restitution non-dischargeable. The need to protect those types of debts from discharge is obvious. But after the federal government decided to start offering federal loans, Congress chose to do the same for student loan debt.
Student loans became non-dischargeable in the late 1970s when Congress added Section 523 to the U.S. Bankruptcy Code. The thinking was that the U.S. Department of Education should be protected from borrowers racing to bankruptcy after graduating. Over the years, Congress has amended Section 523 to protect different types of federal loans , and Federal Perkins Loans) and private loans.
Currently, Section 523 protects a student loan from discharge absent undue hardship if:
- it was made or insured by the federal government
- it was made under a loan program funded by the federal government or a nonprofit
- it is a qualified education loan according to the IRS’s criteria
All federal student loans are protected from student loan bankruptcy discharge. However, some private loans may not be. You can read more about discharging private loans here.
Can Student Loan Debt Now Be Discharged
Currently, the only way for student loan debtors to start fresh is by taking advantage of a little-known legal tool that allows the discharge of student debt through bankruptcy if a debtor can prove that repaying a student loan will cause a severe economic hardship. The test used to confirm severe hardship varies slightly from state to state and from court to court, but most bankruptcy courts are still quite reticent about discharging student loans. However, if a persons income is minuscule, or if a person has no income, it is possible in the most egregious hardship cases to discharge a student loan through bankruptcy.
Since 1987, many bankruptcy courts use the Brunner test, which indicates whether a debtor can afford to pay his or her student loan. To meet the Brunner tests criteria, a bankruptcy petitioner trying to discharge a student loan must prove that he or she has attempted in good faith to repay the loan, that if forced to repay the loan, the petitioner will be unable to maintain a minimal standard of living, and that the situation is likely to persist indefinitely. In 2015, the Department of Education announced that it will not oppose the discharge of student loans in bankruptcy cases where repaying the loan would impose an undue hardship on the debtor.
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Chances Of Student Loan Bankruptcy Success
Every person?s situation is different and the changes to the bankruptcy code have made it very difficult to discharge your student loans. Erasing student loans is usually not the only reason a person files for bankruptcy. The only way we can tell if you may qualify for a student loan bankruptcy is if you contact us for a free evaluation.
Bankruptcy Should Only Be Considered As A Last Resort
Bankruptcy will obliterate your credit score and remain on your record for as long as 10 years, severely limiting your ability to borrow money. If you file for Chapter 7, all of your possessions may be liquidated to pay your creditors. If you file for Chapter 13, youll be placed on repayment plan and may be allowed to keep your possessions. Either way, you wont be able to obtain new lines of credit. It may even prevent you from getting a job.
Be aware that there are many fraudulent debt consolidation and student loan forgiveness companies that will charge fees to file free paperwork for you. Practice caution with any company that asks for money up front to remove your debt.
If youre considering filing for bankruptcy, hopefully your student loan repayment isnt the primary cause, especially if you have federal loans. Federal student loans have a number of plans and programs to help borrowers from defaulting on their loans. If youre carrying serious debt beyond your student loans, your debt-to-income ratio will help you qualify for an income-driven repayment plan and your student loan payments could drop as low as $0.
IonTuition is an expert in the student loan repayment space and specializes in helping borrowers avoid bankruptcy.
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Private Student Loan Bankruptcy Is Getting Easier
The truth is that it is getting easier to discharge private student loans. But itâs not automatic. Many borrowers will still need to jump through extra hoops to get a discharge.
Finding a bankruptcy attorney or law firm thatâs willing to file an adversary proceeding can be challenging. Thatâs where I come in. Iâve helped many people just like you successfully navigate filing bankruptcy on their private student loans. Schedule a free 10-minute talk so we can discuss how I can help you do the same.
Hey, Iâm Tate.
I’m a student loan lawyer that helps people like you with their federal and private student loans wherever they live.
Can You File For Bankruptcy Just For Student Loans
In general, filing for bankruptcy on student loans is usually part of a larger bankruptcy case involving other debts. If you attempt to file for bankruptcy on student loans only, there is a strong chance your case will be rejected. However, it is possible. In fact, you can reopen a previous bankruptcy case that didnt involve student loans to include an adversary proceeding, and have your loans discharged after the fact.
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Does Bankruptcy Take Care Of Student Loans
As college costs have increased, student loan balances have increased even more. These accounts now total almost $1.5 trillion in the United States. Thats higher than auto loan and credit card balances. Younger people owe most of this money. Since their earning power is lower, these accounts often become delinquent. Even if debtors keep their payments current, the loans sometimes require them to put off marriage, home purchase, and other milestone events.
A Chicago bankruptcy attorney can offer struggling student loan debtors several ways to deal with their debt. All these approaches look better on a credit report than a loan default. And, these solutions help ease the financial burden these people feel, so they can move on with life.
Paying Off Delinquency in a Chapter 13
The Automatic Stay and protected repayment period help all debtors take control of their student loan payments, even if they are seriously delinquent,
Generally, as soon as debtors file their voluntary petitions, Section 362 of the Bankruptcy Code kicks in. This provision immediately stops creditor adverse actions such as student loan wage garnishment. It does not matter if the debt is dischargeable, or even if the debtor wants to discharge the debt. The Automatic Stay applies just the same.
Section 362 also applies to other forms of creditor adverse action. These things include repossession, eviction , harassing phone calls at work, and foreclosure.
Discharging Debt in a Chapter 7
Wipe Out Secured Debt
If you can’t afford a payment that you secured with collateralsuch as a mortgage or car loanyou can wipe out the debt in bankruptcy. But you won’t 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 .
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Student Loan Bankruptcy: The Process
For many people, student debt is the one debt they can’t seem to overcome no matter what they do. They’ve made payments when their financial situation allowed. Asked for deferments and forbearances when they couldn’t. They’ve applied for loan forgiveness and lower interest rates. And they’ve even asked for options to reduce their outstanding student loan debt via settlement.
Nothing has worked thus far.
It’s at that point that filing student loan bankruptcy becomes an option.
If You Ignore Your Debts
Ignoring your student loan debts is the worst option. Once youre in default on government-held loans which accounted for 90% of all student loans in the 2016-2017 school year the federal government has extraordinary collection powers. It can garnish wages, seize tax refunds or portions of Social Security benefits, and place liens on bank accounts and property.
And unlike other types of debt, there is no statute of limitations on federal student loans. ;That means that a student loan debtor can be hounded to the grave by the federal bureaucracy or the agency that services loans on behalf of the Department of Education.
Also, after a stipulated number of months of non-payment, a loan can be transferred to a private;collection agency. Additional fees and collection costs are then added to the loan balance.
Rather than trying to ignore your student debt problem, its best to take action as soon as possible, even if that means going into bankruptcy.
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Are Private Student Loans Now Dischargeable
Media coverage of recent rulings from bankruptcy judges would lead you to believe that private student loans are now dischargeable. Thatâs not entirely accurate.
While there have been major rulings over the past few years that made some education loans made by some private lenders dischargeablein some places, thatâs not true in all bankruptcy courts across the United States.
Most people who file bankruptcy with education loans made by a private lender will still need to file a separate bankruptcy proceeding to let a judge decide their eligibility for discharge.
Circuit Courts that have ruled that private student loan debt was discharged:
Private Student Loan Bankruptcy Issues
If your student loans are private bank loans like a student line of credit or student credit card debts, then these types of consumer debts are eligible for automatic discharge under the BIA no matter how old they are. This is true for student loans that are not guaranteed by the Ontario or Canadian government. Private student loan debt in bankruptcy is treated like any other unsecured consumer debt. It is automatically discharged with no waiting period. If you are unsure about whether your private student debt qualifies for elimination through a bankruptcy or consumer proposal, book a free consultation with one of our Licensed Insolvency Trustees to talk about your situation.
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Very Few Attorneys Work These Cases
There are many attorneys that work traditional bankruptcy cases, but Iuliano points out that only a handful of them actually work on student loan bankruptcies as the main core of their practice.
And having a good attorney is a very important part of the process, says Iuliano.
Since getting student loans discharged is such a difficult task, you will need an attorney that knows all the tips and tricks to litigate the case effectively. If youre unsure where to find a good attorney for your case, you can check out Lexria , which is an online platform that connects borrowers with attorneys that specialize in student loan bankruptcies.
Are Student Loans Dischargeable In Bankruptcy
In bankruptcy, you can discharge many different types of debt. That includes unsecured debt like credit cards, personal loans, collection accounts, medical bills, business loans and, in some cases, even student loans.
By law, bankruptcy trustees are required to prioritize certain types of debts in regard to when they get paid. For example, things like child support and alimony, unpaid taxes and criminal fines must be paid before your unsecured debts, which are considered non-priority.
While priority debts generally cannot be discharged, you may be able to be released from accounts included in the non-priority category. Student loans are counted among non-priority debts, but you’ll still have a really hard time discharging them in Chapter 7 or Chapter 13 bankruptcy. The only exception is if you can prove that your student debt has caused undue hardship to yourself and your dependents.
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What Are Alternatives To Bankruptcy For Student Loans
About 250,000 student loan borrowers file for bankruptcy annually, according to academic research from Villanova University but perhaps you shouldnt be among them.
Before filing for bankruptcy, find out if youre eligible for these alternatives for your student loans:
Rather than filing for bankruptcy, getting an income-driven repayment plan or requesting a temporary stop to payments could help you get back on your feet.
Erasing Student Loan Debt Under The Brunner Test
The Brunner Test is a formula devised in the Federal case, Brunner v. New York State Higher Education Services Corp, where the debtor with the student loans shows the court that:
Under the Brunner test, if you can prove undue hardship, your student loans can be completely discharged. Again, being approved for a student loan bankruptcy is not easy, and many people cannot meet this burden of undue hardship, but only a qualified attorney can let you know what your chances are of having your student loans erased with a student loan bankruptcy.
Once you file your student loan bankruptcy case, student loan bill collectors are automatically barred from contacting you any longer regarding them?buying you necessary time to work with a specialist who can erase those student loan debts or put you in touch with professionals who can help consolidate your defaulted loans. ?
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Federal Student Loans Vs Private Student Loans
While the process to get both federal and private student loans discharged in bankruptcy is the same, experts agree that it is far more difficult to get federal student loans discharged than private ones.
Why? For one, most federal student loan bankruptcy cases are handled by the Educational Credit Management Corporation . Henry Sommer, president of the National Consumer Bankruptcy Rights Center, says that since ECMCs attorneys get paid by the Department of Education, they can invest more money in litigation than attorneys from the private sector.
ECMC will fight tooth and nail, says Sommer. Even in the strongest cases, they will fight, and if they lose the case, they will appeal, he adds. In some instances, US attorneys will also be called as part of the defense team.
Hiring an attorney to handle your case could cost you between $1,200 to $3,200, depending on the type of bankruptcy you file for. If you add student loans discharge into the mix, Sommer says that this could end up costing you around $5,000 more, unless they give you a discount or agree to work the case on a pro bono basis.
But paying an experienced attorney to help your case could also hurt your chances of winning.
“They could use that against you saying, Hey, you do have money because you actually were able to hire this person. So, its kind of a catch 22,” says Sommer.