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How Does Bankruptcy Work With Student Loans

Take Steps Early To Avoid Credit Damage

Student Loans in Bankruptcy

If you’re not sure you can make your student loan payments, take steps early to avoid missing payments and default. Both of these scenarios can damage your credit score, making it difficult to qualify for refinancing or get approved for favorable credit terms in the future.

As you decide the best path forward for you, monitor your credit regularly to understand how your actions impact your credit score. Credit monitoring can also help you spot potential issues before they cause significant damage.

How Student Loan Bankruptcy Works

If youre considering student loan bankruptcy, falling behind on your payments will have had a major impact on your life. Perhaps your wages have been garnished because a lender took out a judgment against you. The federal government may have kept your tax refund and applied it to your federal student loans because they were delinquent or in default.

Your student debt is probably just one component of the financial challenges you are currently facing. In fact, if student debt is your only problem, you are unlikely to succeed in getting it discharged through bankruptcy. Filing for student loan bankruptcy is not easy and does not guarantee that you will walk away debt-free. But if your credit is shot, bankruptcy could be a faster path to financial health than continuing to struggle to pay your debts.

There is no special type of bankruptcy called “student loan bankruptcy.” Succeeding in having student loans discharged through bankruptcy involves filing Chapter 7 or Chapter 13 and then taking an additional step, which is filing an “adversary proceeding,” or AP. The AP must be filed to have your student loans considered for discharge.

How Long Do I Have Before My Student Loan Goes Into Default

When you miss your student loan payments, you risk defaulting on your loan. Different lenders have different timeframes for when they consider a loan to be âin default,â so itâs important to know the terms of your loan and understand the timeframe for default. This article will explain how long it takes for federal and private student loans to go into default if you miss a monthly payment.

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Benefit Of Satisfying 7

Satisfy the 7-year waiting period form the date of the bankrupts end of their education
Filing for personal bankruptcyIf you file for personal bankruptcy more than seven years after the date of the ?end of your education? then you are entitled to an automatic discharge of your outstanding student loan
Making a consumer proposalIf you make a consumer proposal more than seven years after the date of the ?end of your education? then you are entitled to a discharge of your outstanding student loan on the date you satisfy your obligations under your consumer proposal

If you file for personal bankruptcy in circumstances where you do not satisfy the seven-year waiting period, you are not entitled to an automatic discharge of your student loan debt, and your bankruptcy will have no impact on your legal obligations arising from that indebtedness. If you fail to satisfy the 7-year waiting period you will, however, be entitled to have most, if not all, of your other unsecured consumer debt discharged or forgiven as a result of your bankruptcy.

Perkins Loan Cancellation And Discharge

Federal Student Loans Work

Federal Perkins Loans are federal subsidized loans that were made to students with exceptional financial need. The federal government allocates the funds for these loans to participating schools. These loans were originated and are serviced by the schools themselves. Though there are many Perkins Loans still outstanding, the U.S. Department of Education stopped allowing new loans under this program after 9/30/2017. The final disbursements allowed were through 6/30/2018.

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Questions & Answers About Student Loans And Income

If you have a high amount of student loan debt, but a relatively low amount of income, you may be wondering if you can arrange an IDR, or income-driven payment plan. This article answers many of the questions you might have, such as what an IDR is, how the monthly payment is calculated, how you qualify for IDR, and what other tools are out there to help with student loan debt.

Understanding The Impact On Your Consumer Report

Bankruptcy can remain on your consumer report for up to 10 yearsRead more >

Bankruptcy can remain on your consumer report for up to 10 years. This may impact your eligibility for Title IV federal financial aid. Obtain a free copy of your consumer report at www.annualcreditreport.com.

You can dispute any entry on a consumer report by filing a dispute with the national consumer reporting agencies.

For more information about managing a defaulted loan, visit our Resolving default section.

No matter what you decide to do, keep your loan holder informed.

If ECMC holds your loan, call us at 888-363-4562. If you dont know who your loan holder is, go to the Federal Student Aid website, which is the central database for all federal student loan information.

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Two: Student Loan Debt & Waiting Periods

If you owe monies on your student loans and you wait long enough, it is possible for you to eliminate this debt by taking advantage of either a consumer proposal or personal bankruptcy. If, however, you do not satisfy certain waiting periods under federal law, your student loan debt will survive your bankruptcy or your consumer proposal. Therefore, you must proceed very carefully when student loans form all or a part of your debt.

When we talk about student loans, two waiting periods are key to the timing of making a consumer proposal or filing for personal bankruptcy:

  • Seven years from the date of the end of your education
  • Five years from the date of the end of your education
  • Canadas insolvency laws punish those with outstanding student loans who file for personal bankruptcy or make a consumer proposal within seven years of ceasing to be a student.

    Does Bankruptcy Cover Student Loans

    How to Discharge a Student Loan in Bankruptcy

    Take Does Bankruptcy Cover Student Loans to pursue your passion for learning. Because learning is a lifelong process in which we are always exposed to new information, it is vital to have a clear understanding of what you are trying to learn. Put what you’ve learnt into practice to prevent squandering valuable information.

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    Calculating When The 7

    If you are contemplating filing for personal bankruptcy or making a consumer proposal in the hopes of discharging your student loan debt, you should seek the help of a Licensed Insolvency Trustee to ensure that you have satisfied the 7-year waiting period.

    To be prudent, if your goal is to have your student loans discharged, you should calculate the start date on the end of your education as the latter of

    • The date you actually ceased attending school, or
    • the last day of your exams for your final semester

    You might want to add 30 to 90 days out of an abundance of caution.

    Bankruptcy: How It Works Types & Consequences

    Bankruptcy is a legal process overseen by federal bankruptcy courts. It’s designed to help individuals and businesses eliminate all or part of their debt or to help them repay a portion of what they owe.

    Bankruptcy may help you get relief from your debt, but it’s important to understand that declaring bankruptcy has a serious, long-term effect on your credit. Bankruptcy will remain on your credit report for 7-10 years, affecting your ability to open credit card accounts and get approved for loans with favorable rates.

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    Student Loan Forgiveness Programs For Nurses

    In this article, you will learn about student loan forgiveness programs available to nurses. Loan forgiveness eligibility qualifies you to have your loan eliminated. Forgiveness programs are only available for federal loans. The following will guide you on how you can reduce or eliminate your student loan debt if you are a nurse.

    Can You Discharge Private Student Loans In Bankruptcy

    Why Filing for Bankruptcy to Get Rid of Student Loans ...

    Before 1976, borrowers could discharge private and federal student loans in a bankruptcy, just like credit card debt or medical expenses. But the introduction of the U.S. Bankruptcy Code in 1978 caused a major shift with regard to student debt.

    At the time, the intent of Congress was to protect educational loans from bankruptcy abuse. The amended bankruptcy code stated that funds received as an educational benefit would no longer be discharged unless the borrower could demonstrate undue hardship.

    Since the ability to discharge private student loans became limited, theres been much debate on the subject. In recent years, there have been a number of major court rulings that made it possible to discharge private student loans. Yet attorneys caution that those rulings still dont necessarily mean that all private student loans are dischargeable in bankruptcy at least not without special circumstances.

    It appears as though the courts will eventually answer this question, unless Congress acts first. However, until that happens, the bankruptcy code allows for private student loans to be discharged in bankruptcy only if borrowers can meet the undue hardship standard.

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    Does Bankruptcy Stop Student Loans

    Take Does Bankruptcy Stop Student Loans to pursue your passion for learning. Because learning is a lifelong process in which we are always exposed to new information, it is vital to have a clear understanding of what you are trying to learn. Put what you’ve learnt into practice to prevent squandering valuable information.

    How Do I Start Bankruptcy Proceedings

    The process starts when you meet with your Licensed Insolvency Trustee and fill in the appropriate paperwork. Bankruptcy will stop wage garnishments and law suits against you by your creditors.

    Once the filing is complete, you will begin to undertake bankruptcy duties and surrender your assets to your Licensed Insolvency Trustee, who will seek to turn those assets into cash and hold those monies in trust for distribution to your creditors.

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    What Happens To Student Loans In Chapter 13 Bankruptcy

    Chapter 13 bankruptcy is a reorganization where youre required to repay part of your debt, likely over three to five years. Some of your remaining debts may be discharged at the end, including student loans.

    Chapter 13 in the news
    In August 2020, a bankruptcy court affirmed the cancellation of $200,000 in education debt for a Colorado couple. The potentially landmark ruling was the final result of a Chapter 13 filing.

    Heres what happens to student loans under Chapter 13 bankruptcy:

    Lenders stop hounding you. Upon filing your Chapter 13 bankruptcy petition, an automatic stay is granted. This prohibits most creditors including student loan servicers from trying to collect debts. This protection typically continues through your repayment period.

    Student loans dont take top priority. Student loans in Chapter 13 bankruptcy are considered nonpriority unsecured debt. This means you arent required to pay the full amount of your student loans through the Chapter 13 repayment plan.

    Your monthly payment may change. The amount you end up paying toward your student loans in Chapter 13 bankruptcy depends on your repayment plan. Your student loans receive a pro rata share, which will likely represent a dollar amount less than your regular monthly student loan payment. In some cases, your student loan debt might be discharged .

    Federal Loans And Hardship

    How Student Loans Work…EXPLAINED!

    Your student loan holder may choose not to oppose your petition to have your loans discharged in bankruptcy court if it believes your circumstances constitute undue hardship. Even if your loan holder doesn’t, it may still choose not to oppose your petition after evaluating the cost of undue hardship litigation.

    For federal loans, the Department of Education allows a loan holder to accept an undue hardship claim if the costs to pursue the litigation exceed one-third of the total amount owed on the loan . Private student lenders are likely to apply similar logic.

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    A Brief History Of Student Loan Debt And Bankruptcy

    Prior to 1976, student loans could be discharged in bankruptcy easily. But in 1998, Congress significantly modified bankruptcy law to only allow a discharge if repaying student loans created an undue hardship.

    In her own experience, I was a good fit for the undue hardship claim, and there are thousands of people across the country in the same situation as I was. She summarized the criteria for a finding of undue hardship:

    The Brunner test is used by the most bankruptcy courts, and requires a finding that:

  • You cant maintain a minimal standard of living for yourself and your dependents and afford the monthly loan payments.
  • The current circumstances are likely to persist for a significant portion of the payment period.
  • You made a good faith effort to repay the loan by maximizing your income and eliminating unnecessary expenses.
  • File For An Adversary Proceeding

    Whether you hire a lawyer or go it alone, youll need to file for an adversary proceeding, which is a hearing to determine the possibility of discharging your student loan debt. Youll have a hearing in bankruptcy court and your creditors are required to be present. At that hearing, youll need to provide evidence that you qualify for undue hardship standards.

    This is part of the process that is unique to bankruptcy and student loans. Note that you cant proceed with a student loan bankruptcy without this step.

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    Getting Financial Aid During And After A Bankruptcy

    Filing bankruptcy does not prevent you from getting federal student loans or other types of federal financial aid. While some federal loans do require that you have good credit , others donât depend on creditworthiness. Instead, they look at your financial need based on your current financial situation.

    What Is Chapter 13 Bankruptcy

    Discharge Student Loan Debt in Bankruptcy

    A Chapter 13 bankruptcy does not liquidate your assets, but it does require you to repay all or a portion of your debts in installments specified by a court-approved bankruptcy plan… Read more >

    A Chapter 13 bankruptcy does not liquidate your assets, but it does require you to repay all or a portion of your debts in installments specified by a court-approved bankruptcy plan.

    If you successfully complete your Chapter 13 bankruptcy plan, the court discharges most or all of your remaining unsecured debt. Remember, like a Chapter 7, your student loan is not automatically discharged under your Chapter 13 general bankruptcy discharge order. So, unless you file an adversary proceeding in which the bankruptcy court concludes you met the undue hardship standard, your student loan will remain a debt you must repay following bankruptcy.

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    Here’s The Story Of One Lawyer Who Did It Herself This Strategy Is Not Right For Everyone And There Is A Very High Standard That Must Be Met But For Some People It Is One Possible Way Out Of From Under Crushing Student Debt

    lOvE lOvE –

    When Uniondale, N.Y.-based Natalie Jean-Baptiste graduated from law school with a six-figure student loan debt, it never occurred to her that she wouldnt be able to pay it back.

    I just knew I was going to be a hotshot entertainment attorney and pay it off in no time. I dreamed of red carpet events, Grammy parties and hanging with my clients in the Hamptons. I never ever dreamed Id end up in bankruptcy court, let alone become an expert on bankruptcy.

    But she did, indeed, become an expert on a very narrow and extremely important area of bankruptcy law, which can be a true godsend to the thousands of people so burdened by student loans that they will never be able to pay them off and live a normal life. Her own experience led to a path in law so much more rewarding than I could ever have imagined, Natalie told me. I get to help people drowning with student loan debt.

    And before going further, this column is not advocating cheating legitimate lenders out of their right to be repaid for making a student loan. Rather, recent history is filled with stories of loans that should never have been made for worthless college programs leaving debtors close to homeless. The next presidential election may address some of these abuses, but for now, for some people, there is a way out of crushing student debt, as you will see.

    Student Loans Are Difficult To Discharge

    You can usually discharge unsecured debts, like credit card debt, medical bills, and personal, loans, in bankruptcy. Student loans are also unsecured debts, but bankruptcy treats them differently. Unlike most other unsecured debts, you cannot automatically discharge them in Chapter 7 or Chapter 13 bankruptcy.

    To discharge student loans, you must to file a separate lawsuit in your bankruptcy case, called an adversary proceeding. To win that proceeding, you must show the court that paying your student loans will cause you or your dependents a hardship. The standard for proving a hardship differs depending on your jurisdiction but is always a steep obstacle to overcome.

    To learn more about what constitutes a hardship, read Student Loan Debt in Bankruptcy.

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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.

    Example

    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.

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