Can Student Loans Be Discharged By Bankruptcy
Asked by: Kayla Rutherford
Absolutely. Though difficult, it is still possible to have student loans discharged through bankruptcy by meeting the undue hardship requirement. … First, the borrower must demonstrate that if forced to repay the student loans, they will be unable to meet a minimal standard of living based on income and bills.
Falsified Claims Of Immoral Bankruptcy Filings Were The Trojan Horse
The Trojan Horse was simple: some people were filing bankruptcy to immorally discharge their student loans. However, these minor immoral occurrences were showcased intentionally to get law changes passed that were clearly against common sense public policy. Student loans became the norm: this far greater evil quickly seeped into our entire higher education system.
What Happens To My Student Loans In Bankruptcy
Student loans and bankruptcy are a complicated area, and not many bankruptcy filers understand how bankruptcy affects their student loan debt and what their options are and how they differ between Chapter 7 and Chapter 13 bankruptcy.
Most Student Loans Are Not Dischargeable in Bankruptcy
In general, student loans are not dischargeable in bankruptcy. That means you will still owe them when your bankruptcy is over.
Now, they only way to get rid of your student loans in bankruptcy is to claim that repayment of the loans creates an undue hardship. The only way this can be proven is through what is called an adversary proceeding. This is like a separate lawsuit within your bankruptcy case. It involves litigation, and will require expert witnesses, depositions ad other witness testimony. As a result, it is not cheap.
Aside from costing you a good chunk of money, winning an undue hardship discharge is incredibly difficult. Most courts, including Colorado, follow the test set out in the Brunner case out of New York . Brunner is a three-part test in you must prove:
1. That the debtor cannot both repay the student loan and maintain a minimal standard of living 2. That this situation is likely to persist for a significant portion of the repayment period of the student loans and 3. That the debtor has made good faith efforts to repay the loans.
The bottom line is that in the vast majority of bankruptcy cases, discharge of student loans is simply not an option.
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Likelihood Of Discharging Student Loans
Why Is It So Difficult To Discharge Student Loans?
In 1976, Congress prohibited federally guaranteed student loans from being discharged in bankruptcy except under conditions of undue hardship. This was in response to largely unfounded fears of too many student debtors looking for an easy way out of their obligations.
This put student loan debt in the same category as financial obligations like child support, alimony and criminal fines.
In 2005, Congress added private student loans to the list of debts that cannot be discharged.
In most bankruptcy cases, consumers dont even attempt to have student loans discharged. Instead, their lawyers focus on other issues such as .
Austin said that less than 1% of bankruptcy filings include student loans, even when there is a compelling case. He cited a situation in which a single mother on a teachers salary and battling cancer didnt bother filing for bankruptcy, despite more than $150,000 in student loan debt.
However, in most cases, the legal hurdles that have to be overcome are so daunting that most lawyers advise their clients not to seek a discharge for student loan debt in their bankruptcy filing. Also, there are now several income-driven repayment plans such as Pay As Your Earn , Repay As You Earn , Income Contingent Repayment and Income Based Repayment that most borrowers should be able to find a program they can afford.
Surprisingly, about 40% of the cases that are filed, actually are successful.
Pei Debt Reduction Program
If youre a PEI resident and you have to borrow at least $6,000 in federal or provincial student loans each year, you could be eligible for a special grant to reduce the debt from your provincial student loan.
Eligible Academic Periods
If you started your schooling prior to August 1st, 2018, you could qualify for a debt reduction grant of up to $2,000 per year of your studies, which you can apply directly to your unpaid provincial student loan balance. To qualify, you must graduate from your program within one year of filing your application.
If you commenced your education after July 31st, 2018, you may be eligible for a debt reduction grant of up to $3,500 per year of study. Once again, you may use your grant funds to pay any provincial student loan balances. However, you must graduate within 3 years of sending your application .
Eligibility Requirements For The PEI Debt Reduction Program
If you graduated during an academic year prior to, you must submit your application within one year of your graduation date. You also have to submit:
- A completed Debt Reduction Grant application
- A copy of your certificate, degree or diploma
- Your loan statement balances from National Student Loans Service Centre and Edulinx-PEI
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Student Loans A Lot Like The Subprime Mortgage Debacle Watchdog Says
But he says the rules are still too restrictive. Lawless researched the issue with a group of attorneys and former judges for the American Bankruptcy Institute, a professional organization. They’re recommending that Congress rewrite the rules on student loans in bankruptcy. Under the proposal, Lawless says, “after seven years from when the loans became due, they would be treated pretty much like any other debt in a bankruptcy case.”
There is at least some support for that in Congress. Part of the obstacle now is that the current rules often require paying your lawyer more money to attempt to get student debt forgiven.
Lawless says it costs on average about $1,200 to file a typical Chapter 7 bankruptcy case. Bankruptcy attorneys say it can cost thousands of dollars more to pay your lawyer to jump through the extra hoops related to student loan debt, unless you find one who will do that for a reduced rate.
Student Loan Forgiveness In Canada
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According to a Canada Student Loans Program Statistical Review, 625,000 students received student loans during the 2018 2019 school year. Plus, the average loan amount was somewhere in the $5,700 range, while the average loan balance was over $13,300 by the time students completed their education.
Statistics also showed that around 330,000 students entered the Repayment Assistance Plan because they couldnt afford their loan payments . Are you a Canadian student struggling to pay off student loan debt? If so, you may be able to resolve the situation by getting loan forgiveness.
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Meet With A Bankruptcy Attorney
Even if you choose to represent yourself, speak with a bankruptcy lawyer, ideally a student loan bankruptcy lawyer, in your area about your options. The lawyer can review your facts and help you understand which type of bankruptcy you should file. They can also give you insight into how the judges in your jurisdiction review student loan cases and an overview of the bankruptcy process.
Quebec Loan Remission Program
Under the Quebec Loan Forgiveness Program, you can get up to 15% of your provincial student loan forgiven if you finish your studies within a specified period or youve received a bursary from the Loans and Bursaries Program for each year of your studies.
The specified period of study is normally:
- 27 months for a college-level technical program
- 24 months for an undergraduate university program, over a 3-year period
- 32 months for an undergraduate university program, over a 4-year period
- 16 months for a masters program without a thesis
- 20 months for a masters program with a thesis
- 32 months for a doctorate program
Eligibility Requirements For The Quebec Loan Remission Program
To qualify for this provincial loan forgiveness program, you must:
- Have been granted a bursary under the Loans and Bursaries during each award year of your studies
- And, have finished an education program that results in an undergraduate degree within the specified study period. Loan remission may also be possible for past college studies, as long as they pass requirements.
- Or, have finished a college-level training program that results in a Diploma of College Studies within the specified study period.
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Adversary Proceeding Student Loans What Is It
An adversary proceeding is a separate lawsuit within a bankruptcy case. Like any other lawsuit, it starts with a disagreement. A student loan adversary proceeding is a type of lawsuit usually filed by a borrower seeking to get rid of their debt because repaying it causes them an âundue hardship.â
The evidence needed to meet that standard is interpreted differently depending on where you live. Some jurisdictions have the judge review a âtotality of the circumstancesâ for the borrower and decide. Others use a less flexible standard, the Brunner Test, that grants a discharge only if the judge answers âyesâ to three questions:
- Have you made a good-faith effort to repay the loans?
- Are you unable to maintain a minimal standard of living while making the payments?
- Is your financial situation likely to persist?
Regardless of which test is used, the bar to getting an undue hardship discharge is high but not impossible to overcome, especially for loans from private lenders. You can click here to learn how getting a private student loan bankruptcy discharge can be easier.
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What Happens When Your Chapter 13 Case Is Over
At the end of the Chapter 13 plan period, your bankruptcy will likely discharge the remaining amounts you owe on your credit cards and other unsecured debts, even if you don’t pay those claims in full through your Chapter 13 plan.
The bankruptcy case will not get rid of your remaining student loan debt, however. Your lender will recalculate your payments based on your loan balance at the end of your case and set up a new payment schedule. At that time, you may be in a better position to afford your student loan payments, especially after discharging other debts.
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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Many Debts Are Eligible For Loan Forgiveness
There are several loan forgiveness programs available to borrowers. A popular student loan forgiveness program is the public service loan forgiveness program or PSLF. This repayment plan assists those who work in the public or non-profit sectors by reducing monthly payments and forgiving the remaining balance of student loan debt after 20 to 25 years.
To qualify for public service loan forgiveness, you must:
Be employed by a U.S. federal, state, local, or tribal government, or not-for-profit organization
Work full-time at one of the above-mentioned agencies or organizations and
Have direct loans or consolidate other federal loans into a direct loan.
The public service loan forgiveness program forgives the loan balance of qualifying loans after you have made 120 qualifying payments under an income-driven repayment plan.
Your loans will not generally qualify for the public service loan forgiveness program if you:
Work for a labor union, certain political organizations, for-profit organizations which include for-profit government contractors
Work for a non-profit organization that is not tax-exempt or
Work part time.
Teachers also have a dedicated federal student loan forgiveness program. Eligibility under the teachers loan forgiveness program is made available to teachers who:
How Can I Avoid Paying Back Student Loans
You can avoid paying more than you owe by changing your payments to direct debit in the final year of your repayments. Keep your contact details up to date so SLC can let you know how to set this up. If you have paid too much the Student Loans Company will try to: contact you to tell you how to get a refund.
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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.
Chapter 7 Vs Chapter 13 Bankruptcy
When people think of bankruptcy, they expect to get rid of the total debt without paying a penny. However, it is not always the case. If you apply for Chapter 7 bankruptcy, sure, you can get rid of the debt. Yet, your debt will be liquidated, meaning that the officials will sell main assets like land, house, or car to pay for your debt. This bankruptcy event will stay in your credit reports for up to 10 years.
On the other hand, Chapter 13 does not eliminate debt completely. This type of bankruptcy is more like restructuring. Instead of canceling your debt, the court will change your repayment plan so that you can pay off some portion of your student loans. As a result, you can even keep your properties. The negative consequences of this bankruptcy can stay on your credit history for up to 10 years.
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Student Loan Forgiveness For Doctors And Nurses In Canada
Eligible family doctors, residents in family medicine, nurse practitioners, and nurses can get Canada Student Loan forgiveness through the federal government. However, only the federal portion of the loan can be forgiven .
Eligibility For Student Loan Forgiveness For Doctors and Nurses in Canada
To qualify for this type of Canada Student Loan forgiveness, you must:
- Have a Canada Student Loan thats in good financial standing
- Be working as an eligible medical professional in an under-served or remote region with a lack of proper healthcare .
- Have been employed for at least one consecutive year in an underserved or remote community and provided at least 400 hours of in-person service.
- Submit an this application
Eligible Medical Professionals
To qualify for Canada Student Loan forgiveness, you must be one of the following medical professionals :
- Nurse Practitioner
- Family Medical Resident
You may get Canada Student Loan forgiveness for nurses and family doctors and if you are:
- Enrolled in full-time studies
- Repaying a student loan
- In your non-repayment period
If your loan is in its repayment period, your monthly payments are still mandatory. That said, youre allowed to work as an eligible medical professional in more than one remote or under-served community and with multiple employers if you perform at least 400 in-person hours over a maximum period of 12-months.