Student Loans And Bankruptcy: What To Know Usnewscom
Student loans and bankruptcy are a complicated area, and not many bankruptcy filers understand how bankruptcy affects their student loan debt and what their;
You can usually discharge unsecured debts, like credit card debt, medical bills, and personal, loans, in bankruptcy. Student loans are also unsecured debts, but;
What Happens To Debt In A Divorce
In the province of Ontario when you get divorced, all matrimonial property is split between the husband and wife. However, with joint debts if you get divorced the debt is not split and you both remain equally responsible to ensure all debts are fully repaid.
In fact, even if you have a legal separation agreement which states that each person is to assume half of any joint debts this will not release you from your spouses portion.
In simple terms, if you are joint with your ex-spouse on a debt, its not a 50/50 split; its a 100%/100% split, because you are both fully liable for the debt. In the case of divorce and bankruptcy, if one spouse declares bankruptcy, the other spouse is fully liable for the joint debt.;;
What Happens If I Have More Debt Than Just My Student Loans
If you are facing debt outside of your student loans, you can consider a bankruptcy or consumer proposal. These debt relief programs wont absolve you of your loans but will allow you to pause your payments until you have completed your program. The idea is that once your consumer proposal or bankruptcy is completed, you will have the tools and be in a better standing to repay your student loans.;
When you book a consultation with David Sklar & Associates, you can have peace of mind knowing that your trustee will work with you and consider your student loans when helping you weigh your debt relief options.
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How To Use Chapter 13 To Manage Student Loan Payments
Even if you cant 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.
What Happens To My Credit If I Declare Bankruptcy
When you declare bankruptcy, it’s a sign that you are no longer paying your debts as originally agreed, and it can seriously damage your credit history. That said, the two types of bankruptcy aren’t treated the same way. Because chapter 7 bankruptcy completely eliminates the debts you include when you file, it can stay on your credit report for up to 10 years.
While chapter 13 bankruptcy is also not ideal from a credit standpoint, its setup is viewed more favorably because you are still paying off at least some of your debt, and it will remain on your credit report for up to seven years.
Shortly after your bankruptcy is discharged by the courtmeaning you no longer owe the debts you’ve included in your filingit may be difficult to get approved for credit, especially with favorable terms. There are some lenders, however, who specifically work with people who have gone through bankruptcy or other difficult credit events, so your options aren’t completely gone.
Also, the credit scoring models favor new information over old information. So with positive credit habits post-bankruptcy, your credit score can recover over time, even while the bankruptcy is still on your credit report.
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You Can Lose Certain Types Of Property
One of the trade-offs for getting a bankruptcy discharge in a matter of a few months is the requirement to give up certain expensive items. Nonexempt property – the type of property the bankruptcy trustee can sell to pay creditors in a Chapter 7 bankruptcy case – is pretty rare.
If you own expensive property you donât want to lose, itâs best to speak to a bankruptcy lawyer. Then youâll know whether thatâs really a possibility and, if so, whether filing Chapter 13 is a better debt relief option for you.
What Is A Licensed Insolvency Trustee
A Licensed Insolvency Trustee is a federal government licensed debt help professional who is also an officer of the court. Despite claims that an LIT only works for your creditor, which are not true, an LIT actually acts more like a mediator between debtors and creditors, using the federal Bankruptcy and Insolvency Act to ensure fairness for all parties. If you are struggling with debt, an LIT will be able to explain every option to help find the best solution for you, and is the only licensed debt professional who can file a bankruptcy or a consumer proposal on your behalf.
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How Accounts Appear On Your Credit Reports
Before filing for bankruptcy, you probably had bills you struggled to keep up with credit cards, medical debt and more.
When you include those accounts in a bankruptcy filing, theyll still be reported on your credit reports. Accounts discharged in bankruptcy can be reported as discharged or included in bankruptcy with a zero balance. Even though you owe $0 for them, theyll still appear on your reports. If you apply for credit, lenders may see this note when they check your reports, and they may deny your application.
But heres that good news we promised: Accounts included in a bankruptcy filing wont be reported as unpaid or past due anymore, and you may feel relief without those financial burdens.
Your credit scores will eventually start rebounding with those positive effects, Huynh says. Thats assuming, of course, you use credit responsibly from here on out.
Keep Track Of Your Credit During The Process
Because declaring bankruptcy can affect your credit history and ability to do certain things in the future, it’s important to monitor your credit scores during the process and as you work on recovering from the ordeal.
As you do so, watch how certain actions affect your credit scores and look out for potential errors and negative information that might influence your score negatively. If you do find something that doesn’t belong on your credit report, dispute it with the credit reporting agencies.
As you keep track of your credit score during and after bankruptcy, you’ll learn better how to improve it over time and keep it in a good place going forward.
Want to instantly increase your credit score? Experian Boost helps by giving you credit for the utility and mobile phone bills you’re already paying. Until now, those payments did not positively impact your score.
This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.
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What Makes A Chapter 12 Bankruptcy Different Than A Chapter 7 Or Chapter 13
In a Chapter 12 bankruptcy, usually, the debtor is a family farmer or fisherman. To qualify as a family fisherman, at least half of their income from the previous year must be from fishing. To qualify as a farmer, at least half of a taxpayers income for the last three years must come from farming activities. In a chapter 12 bankruptcy, taxes are priority liabilities, and the taxpayer must pay them first.
Cooperating With The Trustee
Bankruptcy filers have an obligation to cooperate with the trustee throughout their bankruptcy case. Filers will need to provide the trustee with a copy of the tax return for the year the case was filed.
After the meeting of creditors the trustee will file a Report of No Distribution indicating that no funds are going to be distributed to your creditors or a Notice of Claims Bar Date stating the due date for creditors to file claims to receive funds in your bankruptcy. Other than these filings, ideally you will not hear from the trustee after the meeting of creditors.
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What Happens If My Ex
If you are owed child support and/or alimony from a former spouse, and that person declares bankruptcy, you are still entitled to receive payments, and will be considered a preferred creditor in the process. Under bankruptcy law, you can claim missed child support or alimony payments for the previous 12 months before your ex-partner filed for bankruptcy. It would be best to speak to a family lawyer or to the Licensed Insolvency Trustee handling your exs bankruptcy for more information.
The Things That Happen Immediately After Filing Bankruptcy
As soon as you file your Chapter 7 bankruptcy, you are given a case number and a bankruptcy trustee is assigned to your case. The bankruptcy trustee will oversee your bankruptcy filing, will review your bankruptcy forms, and may ask for additional documents to verify your information. The trustee will also conduct the meeting of creditors.
Protection from your creditors begins immediately after filing for Chapter 7 or Chapter 13 bankruptcy. This is called the automatic stay. Once you file and the automatic stay takes effect, your creditors are not allowed to take collection action against you.
After you file for bankruptcy protection, your creditors can’t call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt. Wage garnishments must also stop immediately after filing for personal bankruptcy.
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Does Bankruptcy Affect College Grants And Loans
College is one of the most expensive investments youll ever make. This is especially true if you attend beyond the traditional four years and seek a higher degree.
By the time many people complete their education, theyre dealing with tens if not hundreds of thousands of dollars in debt. And while its worth it and can provide an opportunity for higher earnings and career advancement, in the long run, its just too much for some people. College debt is one of the most common reasons people file for bankruptcy.
In some cases, bankruptcy becomes a necessity before someone finishes his or her education. Even if their student loans are not due to be paid yet, they might have accumulated other types of debt. Though its more common for older people to file for bankruptcy, there are still those who need to file in their mid-to-late 20s while they are still attending school.
But what happens when debt drives you into bankruptcy, but youre relying on a variety of sources to pay for college?
Does filing for bankruptcy affect financial aid?
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Your Debts Are Eliminated
Thats right, your debts are gone which is the ultimate objective of declaring bankruptcy.
NOTE: Not all debts are eliminated. ;If you owe child support or alimony, or court fines, those obligations survive your bankruptcy. ;Secured debts, such as the mortgage on your house, or a car loan, also dont go away, provided you decide to keep your house or car and continue paying your secured loan.
All other unsecured debts are eliminated, including credit cards, bank loan, payday loans, and even income taxes owed to Canada Revenue Agency.
So even though bankruptcy requires you to complete your duties, for most people eliminating their debts and not having to worry about legal action or a wage garnishment is worth it.
To find out more about eliminating your debts, please contact a licensed bankruptcy trustee for a no charge initial consultation.
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The Effects Of Bankruptcy On An Existing Mortgage
If you declare bankruptcy, there are established procedures of due process. You dont automatically lose your house. Nor is your loan accelerated to automatically become due if youve been current up to this point on your payments.
The following sections will go over how bankruptcy affects your current mortgage.
How Long Do I Have To Wait After Chapter 13 To Get A New Mortgage
Rocket Mortgage and other lenders may give you the option of getting an FHA or VA loan as long as the Chapter 13 bankruptcy is discharged or dismissed before you apply.
If you’re looking to apply for a conventional loan, it matters whether your bankruptcy was discharged or dismissed. In the event of a Chapter 13 discharge, the discharge date has to be more than 2 years prior to the date credit is pulled and more than 4 years since the filing.
If the bankruptcy was dismissed, theres a 4-year waiting period until credit can be pulled for a new conventional mortgage.
Finally, jumbo loans still have a 7-year waiting period before you can apply.;
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Does Bankruptcy Affect Future Or Current Employment
You might be hesitant to file for bankruptcy because youre afraid you might lose your job. Maybe youre concerned that a potential employer will deny your employment if you filed for Chapter 7 or Chapter 13 bankruptcy. If you cant meet your financial demands with a job, how would you meet them without one?
Types Of Personal Bankruptcy
In the case of individuals, as opposed to businesses, there are two common forms of bankruptcy: Chapter 7 and Chapter 13. Here is a brief description of how each type works:
Chapter 7. This type of bankruptcy essentially liquidates your assets in order to pay your creditors. Some assetstypically including part of the equity in your home and automobile, personal items, clothing, tools needed for your employment, pensions, Social Security, and any other public benefitsare exempt, meaning you get to keep them.
But your remaining, non-exempt assets will be sold off by a trustee appointed by the bankruptcy court and the proceeds will then be distributed to your creditors. Non-exempt assets may include property , recreational vehicles, boats, a second car or truck, collectibles or other valuable items, bank accounts, and investment accounts.
At the end of the process, most of your debts will be discharged and you will no longer be under any obligation to repay them. However, certain debts, like student loans, child support, and taxes, cannot be discharged. Chapter 7 is generally chosen by individuals with lower income and few assets. Your eligibility for it is also subject to a means test, as explained bellow.
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Tax Refunds Are Property Of The Estate
Your bankruptcy estate is the pool of your assets on the date of your bankruptcyfiling. Unless these assets are protected by an exemption, your bankruptcy trustee can distribute them to your in repayment of your debts. Tax refunds are tricky because they are often part of your bankruptcy estate even though you may not receive the refund until months after your bankruptcy filing.
Hereâs the rule: if you earned all or part of a tax refund for work you did before filing for bankruptcy, that portion of your tax refund is part of your bankruptcy estate. So that portion of the refund belongs to your trustee, unless the refund is protected by an exemption.
Example 1: David files for Chapter 7 bankruptcy on January 1, 2019. Two months later, David files his tax return for the previous year and he receives a $2,000 tax refund. Because David earned 100% of the tax refund for his work before filing for bankruptcy, the entire tax refund is part of Davidâs bankruptcy estate. Unless David can protect the refund with an exemption, the bankruptcy trustee is entitled to the $2,000 refund.
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A Creditor Making You Bankrupt
Your creditors can present a creditor’s petition if you owe them an unsecured debt of over £5,000. This may be the sum of two or more debts which total over £5,000. There might;be different petitioning creditors on the same petition for;different debts you owe.
Once bankruptcy proceedings have started, you must co-operate fully even if it’s a creditor’s petition and you dispute their claim. If possible you should try to reach a settlement before the petition’s due to be heard – doing it later can be difficult and expensive.
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