Can I File For Chapter 7 Bankruptcy When I Have Student Loans
In most cases, you cannot discharge student loan debt when filing Chapter 7 bankruptcy, but you can still file Chapter 7 to reduce other unsecured debts. For those who have credit card debt in addition to student loan debt, this can provide the breathing room necessary to allow the debts to be repaid.
That said, you may be able to discharge your student debts if you can prove undue hardship. If you are struggling with student loan debt, talking to a legal professional who can help you determine if you have undue hardship is a wise move. You may be able to get the freedom you need with a little bit of help.
How To Discharge Student Debt
Student debt may be part of your Chapter 7 or Chapter 13 bankruptcy filing. However, discharging your student debt is not an automatic process in a bankruptcy filing. This type of debt is initially exempt from discharge. To have student loan debt discharged, you must affirmatively request the bankruptcy court discharge it by filing an adversary proceeding petition that requests the court find that repaying your student loans would cause an undue hardship. Your student loan account holder may be present at this request and can challenge it.
If you previously filed for bankruptcy without claiming undue hardship, you may still be able to reopen your bankruptcy case for the purpose of determining undue hardship.
How To Get The Ball Rolling Not A Slam Dunk
Natalie wants readers to understand this is not a slam dunk. First, you need to find a bankruptcy attorney who is familiar with the undue hardship rules, as many are not.
It is important to understand that you will be filing for bankruptcy, and, as you are claiming an undue hardship, this will be decided in what is called, An Adversary Proceeding in bankruptcy court. This is a real lawsuit, as the creditor wants to be paid and you are trying to demonstrate why the loan should be forgiven.
You will appear before a judge who will most likely use the Brunner Test to decide if you have an undue hardship.
If you can prove all three of these elements, you are entitled to a discharge, but youve got a lot of work to do, beginning with conducting discovery.
Be prepared to provide financial records, tax returns, bank statements showing your financial resources, proof of expenses, housing, utilities, food, etc. You will need to present a detailed picture of your financial life.
She also wants readers to understand that not all student loans are Qualified Education Loans.
For example, a private bank making a loan where the amount exceeds the published cost of attendance might not be a qualified loan and therefore is dischargeable without having to show undue hardship.
Her website is well worth the time for anyone facing crushing student loan debt.
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How To Pursue Student Loan Discharge In Bankruptcy Proceedings
Meeting the standard of undue hardship is incredibly difficult, so its worth speaking with a bankruptcy lawyer to see if its even a possibility in your unique situation. However, you may be able to claim it under certain circumstances, such as living with a permanent disability or terminal illness.
Even if you think you meet the standard of undue hardship, its important to understand that discharging student loans involves additional work on top of the standard bankruptcy proceeding.
Its not as simple as filing for bankruptcy, Kantrowitz says. Its an adversary proceeding within a bankruptcy proceeding. That means the lender gets to defend against bankruptcy discharge.
What Is The Nature Of Canadian Student Loans
Federal student loans in Canada are interest-free loans for full-time students.
The interest on these loans is paid by the Canadian government while you are studying full-time.
Students who have availed a Canadian student loan must confirm their student status at the end of each academic year.
Your repayment period will begin 6 months after you complete your degree.
The interest on your federal student loan will start accruing from the time your course gets completed and you stop being a full-time student.
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How To File For Student Loan Bankruptcy
Discharging student loans comes at the end of the bankruptcy process. Heres what you need to do first.
1. Find a bankruptcy attorney. While an attorney isnt absolutely necessary, working with one especially one with at least some student loan experience can help you navigate the complicated process more smoothly.
Filing for bankruptcy costs anywhere from several hundred to several thousand dollars, depending on your location and the cases complexity. Plus, there are attorney fees for the adversary proceeding required to get student loans discharged.
However, you likely wont qualify for student loan bankruptcy discharge if you can afford an attorney, says Michael Fuller, a Portland, Oregon-based consumer attorney who takes on student loan bankruptcy cases pro bono.
Here’s where to find free legal help:
Legal Services Corporation: Search for local legal aid by ZIP code.
Student Loan Borrower Assistance: This nonprofit has a list of legal aid organizations by state.
Massachusetts Student Loan Bankruptcy Assistance Project: A group of attorneys and law firms offering free representation for adversary proceedings.
Oregon Student Debt: A pro bono student loan organization.
2. File for Chapter 7 or 13 bankruptcy. You must file for bankruptcy before your student loans can be discharged. Your attorney can help determine the type of consumer bankruptcy thats best for you: Chapter 7 or Chapter 13.
Qualifying For Student Loan Bankruptcy Discharge
A discharge of your student loans may be possible if you prove you have an undue hardship that prevents you from making student loan payments, orwith private loansif the loans did not provide an educational benefit.
With federal student loans, there is no standard set of guidelines for demonstrating undue hardship. Most courts rely on the Brunner Test, which requires you to prove that:
- You wouldnt be able to maintain a basic living standard if you made loan payments.
- Your financial hardship will last an extended amount of time.
- You made a good faith effort to repay your loans before filing for bankruptcy.
Not only are these circumstances extremely challenging to prove, the Brunner Test is somewhat subjective. Not only every state, but every jurisdiction will have different standards in determining whether the Brunner Test applies, said Leslie Tayne, a financial attorney and the founder and managing director of Tayne Law Group, in an email to The Balance.
Its not the only test that exists, however. The courts of the Eighth Circuit, for example, use the totality of circumstances test, which looks at the borrower’s overall situation. This benchmark is considered less restrictive than the Brunner Test.
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Do I Need To Continue Paying Student Loan Payments While In A Proposal Or When I File For Bankruptcy
You may stop making loan payments against your student loan while in a consumer proposal or bankruptcy.
Lenders cannot collect payment against student debts when they have filed for bankruptcy or are in consumer proposal because of the protection provided by the Bankruptcy & Insolvency Act.
However, the interest component keeps accruing and the principal amount including interest continues to exist.
Filing for bankruptcy or a consumer proposal does not make the student loan disappear.
It is, therefore, advisable to continue making small payments towards your student loan that cannot be discharged yet.
You may need to sign and add a form like the Sec 178 claim, to your overall insolvency documents.
Can I Discharge My Student Loan By Filing Bankruptcy
A common misconception is that student loans can never be discharged with bankruptcy. While it is certainly difficult to have these debts discharged, it is not impossible in all cases.
The experienced Cincinnati bankruptcy attorneys at OConnor, Acciani & Levy can help you determine if bankruptcy is the right option for your student debt. We are committed to helping our clients achieve the new financial beginning they need to restart their lives.
Contact us to set up a free, no obligation consultation to determine the legal options available to you.
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Can Bankruptcy Help With Student Loans
Millions of recent college graduates and current students are facing overwhelming student loan payments at a time when the job market is extremely tight and starting salaries are barely enough to pay rent, food and basic living expenses. There is often nothing left over to make payments on student loans which generally start six months after leaving school or graduation.
For all borrowers, the average student loan debt in 2011 was $23,300,with 10% owing more than $54,000, and 3% owing more than $100,000.
Is there any way bankruptcy can help?
In general, in terms of cancelling these debts, the answer is unfortunately no. The Bankruptcy Code excerpts from discharge all government guaranteed loans and any debts to a non-profit educational institution such as a state college or university. While students can often apply for and receive deferments of their payments if they are unemployed, the debts continue to accrue interest, so the balances are much higher when the debt comes out of forbearance.
Bankruptcy can help, however, with the ability to repay student loans, by compartmentalizing a persons overall debt problems into categories, student loan and non-student loan, and processing the bankruptcy to eliminate the non-student loan debt, thus making it easier to work out a practical repayment plan when the person filing becomes otherwise debt free. This is a very common and effective strategy.
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Decide Which Type Of Bankruptcy To File For
Next, on your own or with your lawyer, youll need to decide whether to file for Chapter 7 or Chapter 13 bankruptcy. Student loan bankruptcy can be addressed under either Chapter 7 or Chapter 13 bankruptcy, though its treated differently under the two categories.
Below is a breakdown of some of the qualifications and how each type of bankruptcy treats student loan debt:
Chapter 7 bankruptcy
- You must prove you have little disposable income available to pay off your debt.
- Most unsecured debt can get wiped out.
- Student loan debt may be eligible for discharge.
- The process can take about four months.
Chapter 13 bankruptcy
- You have some income to use to repay some of your debts.
- Your debt will be restructured, and some of it will need to be repaid.
- Student loan debt may be eligible but your repayment will be restructured, not discharged.
- The court process can last from two to six months, and the repayment plan can take three to five years.
Note that personal bankruptcy can come at the cost of hurting your credit for years. When it comes to your credit report, a Chapter 7 bankruptcy remains there for 10 years, while a Chapter 13 bankruptcy stays for seven years, which can make it difficult for you to secure loans or credit, as well as favorable rates. When you file for bankruptcy, you can also rack up significant legal and court fees along the way.
How Does Bankruptcy Work With Student Loans
The law states that the court must find that a student loan would cause undue hardship in order for it to be discharged through bankruptcy. This can be a difficult process. A judge determines if your situation qualifies as undue hardship and often use the Brunner Test, which is a way to look at the totality of your circumstances.
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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.
How Bankruptcy Affects Student Loans
As shown in this graph from the Federal Reserve Economic Database student loan debt has been going up steadily since 2006. As of the second quarter of 2020, outstanding student debt added up to $1.54 trillion.
An interactive version can be found at this link. In part, this is because the cost of higher education has been increasing steadily. But, the perceived inability of student loan borrowers to discharge this type of debt in bankruptcy hasnât helped.
A bankruptcy filing can discharge federal student loans, but only if the bankruptcy judge finds that it would be an undue hardship for the borrower not to do so. Under current bankruptcy laws, this requires the person filing bankruptcy to bring an adversary proceeding.
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When Adversary Proceedings Fail
In the event filing an adversary proceeding does not make a change, those who owe student loan debt may benefit from filing Chapter 13 instead of Chapter 7. This is particularly true if most of their debt consists of student loans. This is because a typical Chapter 13 plan lasts for five years, and the payments are based on income. It is worth noting filing Chapter 13 will not stop interest from accumulating but using this option may give you the benefit of paying less on your loans for a period of time.
If you are feeling overwhelmed by student loan debt, contact us and let us help you explore your options. Contact the Law Offices of James C. Shields, a Torrance bankruptcy law firm today by fill out our online free case evaluation form or by telephone at 310-540-6792.
Does Bankruptcy Help Student Loan Debt
Youve likely heard that you cant use bankruptcy to get rid of student loan debt. However, you can get your student loans discharged in some instances. Youll have to fulfill strict requirements and the process can be more complicated for student loan bankruptcy than it is for other forms of debt. If youre a Texas resident and want to know how to get rid of student loans, here are some important things to know about bankruptcy.
How Does Chapter 7 Affect My Student Loans
Immediately upon filing a Chapter 7 bankruptcy petition, the automatic stay prohibits most creditors, including student loan creditors, from taking collection action against you during the Chapter 7 bankruptcy, which typically lasts about 90 days. During this time you can, but are not required to, make student loan payments. When your debts are discharged at the end of the Chapter 7, your student loans will again re-enter repayment. At this point, your other debt will have been greatly reduced or eliminated by your discharge, enabling you to focus your repayment efforts on your student loans.
Can The Court Discharge A Portion Of My Student Loan Debt
Yes. The court is not forced to choose between all or nothing in a student loan discharge case. The court has the option to discharge a portion of your student loans if they choose to.
When looking to discharge student loans in bankruptcy, the possibility of a partial discharge can be good or bad, depending on your situation. Sometimes, a partial discharge allows us to drastically reduce your student loan payments which can change your life.
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What Qualifies As Undue Hardship
Unfortunately, bankruptcy law is unclear on what makes undue hardship.
Congress never defined what undue hardship means, Kantrowitz says. They left it up to the courts to define it.
Bankruptcy courts are free to use two different tests to decide if the borrower is experiencing undue hardship the Brunner test and the Totality of the Circumstances test. According to Kantrowitz, the Brunner test is far more widely used.
Under the Brunner test, the debtor must prove three things.