Finding Financial Solutions With Or Without Filing Bankruptcy
Stephan Skepnek is a Kansas City student loan lawyer who successfully solves student loan problems by helping clients consolidate Federal Student Loans and apply for Income-Based Repayment Plans, defend clients in student loan lawsuits on private student loan debt or, when necessary, reduce or eliminate student loan debt through the bankruptcy process.
When borrowers fall behind on student loans or are just frustrated by the huge balances due, the consequences can be catastrophic to their finances and financial futures. Borrowers can face wage garnishments, tax refund garnishments, harassment by creditors, lowered credit scores, an inability to save for retirement and difficulty obtaining financing for mortgages, car loans and businesses.
Depending on the profession and institution attended, student loan balances exceeding $100,000 and more are commonplace. Adding compound interest and fees into the equation, these loans can double, triple and quadruple over the course of decades. In the past decade alone U.S. student debt has increased by more than 91%.
Reach Out to a Student Loan Attorney in Kansas City
Student loan debt should not ruin your goals of financial security and the student loan attorneys at Sader Law Firm can help you save thousands of dollars or more over the life of your loan.
The Sader Law Firm offers information to student loan borrowers directly or filling out our online case review contact form.
When Did Private Student Loans Become Nondischargeable
While federal student loans have been nondischargeable in bankruptcy since 1976, private student loans didnât receive the same treatment until 2005. That year, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act to make it more difficult for borrowers to file for Chapter 7 bankruptcy and, instead, push more debtors to file Chapter 13.
As part of the Act, Congress amended 11 USC Â§ 523 to prevent the bankruptcy discharge of education loans that did not exceed the studentâs cost of attendance at certain higher education institutions. These types of debts are referred to as qualified education loans.
How to find out if you have private student loans? The easiest way to find out what type of student loans you have is to check your credit report against the loans the Department of Education shows you have with them. You can do that by creating an account with studentaid.gov. Any student loan you see on your credit report but not on the website is a private loan.
How Are Debtors And Attorneys Discharging Student Loans In Bankruptcy
The student loan attorneys at Sader Law Firm have obtained significant reduction in student loan debt through bankruptcy, by filing adversary proceedings, which is a case within a bankruptcy case, where the court considers whether the loan payments would cause undue hardship for the debtor. Sader Law Firm guides borrowers though the adversary process to obtain the discharge and reduction of the student loans.
What is the status of the Federal Student Loan payment moratorium and proposed Federal Legislation?
Borrower repayment of federal student loans has been paused since the beginning of the COVID-19 Pandemic and the Biden administration has indicated that the student loan payment moratorium, which includes a pause on student loan payments, interest suspension, and a collections moratorium will end on January 31, 2022.
The Biden Administration has cancelled nearly $10 billion in federal student loans through executive action on programs like Borrower Defense and Total and Permanent Disability Discharges, and announced reforms to the Public Service Loan Forgiveness program. Borrowers should be aware that suspended payments during the moratorium count towards student loan forgiveness under the PSLF program and the proposed reforms will simplify and broadly expand access to the PSLF program.
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Cost To File Bankruptcy On Student Loans
The bankruptcy court does not charge court fees to file student loan bankruptcy. However, the fee you paid your bankruptcy attorney to file Chapter 7 or Chapter 7 did not include the attorney filing an adversary proceeding for student loans. Therefore, unless you find an attorney willing to file the AP at a reduced rate, you may have to spend several thousand dollars hiring a student loan bankruptcy lawyer.
What To Look For When Hiring A Student Loan Bankruptcy Lawyer
The quality of services offered by student loan bankruptcy lawyers can vary considerably. As a result, finding a qualified and experienced attorney to help with your student loan issues takes effort. When hiring a lawyer to help with your bankruptcy case, look for these three factors.
Law license and bankruptcy court admissions: An attorney needs a law license to practice law in a state and permission to appear in the court where you live. You can find an attorney’s law license by visiting the website of your state’s bar association. To find out if they have permission to practice in the bankruptcy court near you. If they don’t, they may be able to file a motion to appear pro hac vice on your behalf, or they can ask the court to be admitted.
Qualifications and experience: A law degree is the only education qualification needed to be a student loan bankruptcy lawyer. There aren’t any specialized designations or credentials attorneys receive to solve student loan issues. Consequently, you’ll need to check to see if they have experience helping borrowers inside and outside of bankruptcy with their student loans.
Client testimonials: Read the online reviews of the student loan bankruptcy lawyer’s services. Ask the attorney if they have any case studies or video testimonials from previous clients.
For example, here’s a video from a single mother I helped to reopen her Chapter 7 bankruptcy case and discharge over $80 thousand in private student loans.
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Are Student Loans Dischargeable In Bankruptcy
Student loans can be very difficult to deal with. Its a national problem, but my clients in Los Angeles, California seem to have lots of student loan issues.
There is a lot of momentum in Congress relating to student loans and the ability to discharge them in a bankruptcy case.
As of June 2019 there is a bill pending with modest bipartisan support towards this end.
We in the industry of helping debtors are hopeful that some law will be passed making at least some student loans dischargeable in bankruptcy.
Presently, however, it is very difficult under the current laws to discharge student loan debts in bankruptcy.
For cases filed after October 7, 1998, Student Loans are dischargeable only if you can prove that having to repay it would impose an undue hardship¹ you . Proving undue hardship requires going through a separate trial, in addition to the underlying bankruptcy case filing. This obviously adds an undesirable layer of costs with no certain outcome.
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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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.
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Discharging Student Loans In Bankruptcy
We have assisted and been successful in discharging some if not all of our clients student loan debt. However for all intents and purposes discharging student loans in bankruptcy is a very difficult prospect and something that is not within reach of most people. Frankly speaking, due to the enormous legal hurdles which must be overcome this type of debt is very difficult to discharge.
Institutions of higher education are benefiting tremendously from free money given to bright eyed youths who have very little understanding as to consequences of carrying such incredible debt throughout their lives. The result of this never ending supply of money is that such institutions raise prices to attract better professors, build better facilities, and generally make their product more attractive. Even those colleges who wish to remain responsible and keep tuition prices stable are forced to upgrade lest they be bumped out of the rankings and lose students.
For a very brief time from 1978 to 1979, due to a drafting error, student loans were dischargeable in bankruptcy. However that was quickly remedied by congress and non-private student loans became non-dischargeable. However up and through 2005 private student loans were dischargeable in bankruptcy. This served as somewhat of a check but when that was removed we once again witnessed an explosion of student-loan debt.
Under the Brunner test the debtor must establish by a preponderance of the evidence that:
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What Year Did Student Loans Become Nondiscahrgeable
Student loans first became nondischargeable in bankruptcy in 1976 as part of Â§ 439A Higher Education Act of 1976. Except in cases of undue hardship, Section 439A prohibited debtors from discharging student loan debt until 5 years after the start of the repayment period.
Why are student loans exempt from bankruptcy? Student loans are exempt from bankruptcy because many politicians feared that young people would borrow substantial sums to pay for college and then discharge their student loans in bankruptcy right after graduation. As a result, starting in the early 1970s, Congress began changing the bankruptcy laws to require a borrower to prove undue hardship before she could discharge her student loan debt.
When To Hire A Lawyer
You should hire a student loan bankruptcy lawyer when you’re ready to start the bankruptcy proceedings to discharge your loans. You can hire them before or after your case ends. However, it’s advisable to meet with the lawyer before you file bankruptcy to improve your odds of getting a discharge. For example, during that meeting , the lawyer can review your student loans, past and current income, and other additional circumstances to offer their legal advice about whether you should pursue other alternatives before filing a case.
The goal is to help prove to the court that you’ve exhausted options, and the only way you can dig out of this student loan black hole is to wipe out your debt.
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If You Need Additional Student Loan Help
If youre struggling with your student loan debt, first speak with your servicer or lender to:
Discuss repayment options.
Take a temporary payment pause.
Temporarily reduce your monthly payments.
If your problem is with your lender or servicer or youre not getting the help you need, look for a legitimate student loan help organization that offers counseling. Consider these vetted resources for student loan help they are established organizations with verified histories:
Student loan help resource
Advice on debt settlement, bankruptcy, default and forgiveness. Licensed in Missouri and Illinois.
Many of these organizations offer advice for free. In some cases, you may need to pay a fee, as with a certified nonprofit credit counseling agency or if you hire an attorney.
None of the organizations above calls, texts or emails borrowers with offers of debt resolution.
Offers of help that you have not sought out are likely to be scams. While its not illegal for companies to charge for services such as consolidation or enrollment in a payment plan, those are steps you can do yourself for free.
Avoid any debt relief companies that demand money upfront.
How A Student Loan Lawyer Can Help You
It seems overwhelming when you struggle to pay student loans, along with rent and other necessary expenses all on the starting salary of a recent college graduate. You want to avoid defaulting if youre building credit to buy a car or a house.
A student loan lawyer with LHA helps you find a practical, affordable solution. Our student loan attorneys have a deep understanding of lending and bankruptcy laws. We might obtain student loan forgiveness or student loan deferment options, depending on your situation.
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Minimal Standard Of Living
The first factor that will be taken into consideration is your ability to maintain a minimal standard of living for yourself and your dependents given your student loan debt and monthly payments. This does not mean that only people living in poverty with no possessions will satisfy this requirement. Courts will look at your monthly income and your monthly expenses including the amount necessary to repay your student debt. The purpose of this is to determine the reasonableness of your budget as a whole.
A minimal standard of living includes, among other things, furnished and maintained shelter, basic utilities, food, clothing, vehicles, insurance, and even the ability to pay for a source of recreation. Again, the court will look at the reasonableness of each of these expenses.
This prong can be tough to meet for individuals with federal student loans due to the fact that there are income-driven repayment plans available, which can greatly lower monthly payments. If your monthly student loan payment is $0 or something close to that, it is hard to argue that such a small amount is preventing you from sustaining a minimal standard of living. However, it is possible for an individual to have unaffordable payments even while on an income-driven repayment.
Courts may also consider the individuals spouses income in addition to the individuals income when determining the minimal standard of living even if the individuals spouse has not declared bankruptcy as a co-debtor.
What Is The Standard For Discharging Student Debt In Bankruptcy
Generally, the standard to discharge student loans in bankruptcy is a showing that the payment of the debt will impose an undue hardship on you and your dependents. Generally, most courts will use the Brunner test to determine if there is an undue hardship imposed on you and your dependents.
The Brunner test has three main factors that courts will focus on:
- Whether you can maintain a minimal standard of living for yourself and your dependents if you must repay the student loan
- Whether you and your dependents have circumstances, above and beyond normal circumstances, that will extend through at least a significant portion of the loan and
- Whether you have made good faith efforts toward repaying your student loan.
We will go into further detail about each of these factors below.
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Work With Our Experienced Nj Student Loan Discharge Attorneys Today
If you or a family member need assistance handling their student loan debt, contact an experienced New Jersey student loan discharge attorney. Young, Marr, Mallis & Associates understand the stress associated with owning a large amount of student loan debt, and we are here to help you find a solution to this problem. To schedule a free legal consultation, contact Young, Marr, Mallis & Associates at 236-3519.
Chapter 13 And Student Loans
A case under chapter 13 is often called reorganization. In a chapter 13 case, you submit a plan to repay your creditors over time, usually from future income. These plans allow you to get caught up on mortgages or car loans and other secured debts. If you cannot discharge your student loans based on undue hardship in either a chapter 7 or chapter 13 bankruptcy, there are still certain advantages to filing a chapter 13 bankruptcy. One advantage is that your chapter 13 plan, not your loan holder will determine the size of your student loan payments. You will make these court-determined payments while you are in the Chapter 13 plan, usually for three to five years. You will still owe the remainder of your student loans when you come out of bankruptcy, but you can try at this point to discharge the remainder based on undue hardship. While you are repaying through the bankruptcy court, there will be no collection actions taken against you. You may have other options, depending on how judges decide these cases in your judicial district. For example, some judges allow student loan borrowers to give priority to their student loans during the Chapter 13 plan.
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Can You Discharge Student Loans In Bankruptcy
Yes! While not everyone is entitled to discharge student loans in bankruptcy, it is not impossible as many people would have you believe.
To determine whether you can discharge student loans in bankruptcy, you should start by identifying the type of loan that you have. Generally, you should know whether you have a federal student loan or a private student loan. While it is possible to discharge federal student loans in bankruptcy, it is more difficult to discharge federal student loans in bankruptcy than to discharge private student loans in bankruptcy.
Why? In order to discharge a federal student loan in bankruptcy, you must establish an undue hardship. This can be difficult to prove for many people. On the other hand, there are other ways to show that a private student loan can be discharged in bankruptcy . Well discuss this in more detail below.