Can I Get Rid Of My Student Loans By Filing Bankruptcy
Filing bankruptcy on student loans may sound like an ideal solution to completely wipe out your student loan debt, but its not that easy. Not all student loan debt can be forgiven federal student loans are non-dischargeable. Its best to consult with an attorney to guide you through the process, especially because filing bankruptcy on student loans requires an additional lawsuit known as an adversary proceeding.
The success statistics of bankruptcy and student loans arent widely available because debtors who file for bankruptcy rarely request to discharge student loan debt. The key to a successful case is proving the student loan are causing you hardship.
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:
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Legal Services Corporation: Search for local legal aid by ZIP code.
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Student Loan Borrower Assistance: This nonprofit has a list of legal aid organizations by state.
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Massachusetts Student Loan Bankruptcy Assistance Project: A group of attorneys and law firms offering free representation for adversary proceedings.
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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.
» MORE:How borrower defense to repayment works
Get Student Debt Relief
If you are looking for relief from student loan debt, a bankruptcy or consumer proposal can eliminate certain student debt. Student debt can be included in a bankruptcy or consumer proposal depending on how old your student loans are, whether your student debts are a private student loan with a bank or are government guaranteed student loans, and what your budget can afford. Our licensed insolvency trustees can help you review the pros and costs of each student debt relief option and decide which will work for you. Here is some information you may want to talk about.
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Are Private Student Loans Now Dischargeable
Media coverage of recent rulings from bankruptcy judges would lead you to believe that private student loans are now dischargeable. Thatâs not entirely accurate.
While there have been major rulings over the past few years that made some education loans made by some private lenders dischargeablein some places, thatâs not true in all bankruptcy courts across the United States.
Most people who file bankruptcy with education loans made by a private lender will still need to file a separate bankruptcy proceeding to let a judge decide their eligibility for discharge.
Circuit Courts that have ruled that private student loan debt was discharged:
When Do Student Loans Qualify Under Undue Hardship
The criteria for demonstrating undue hardship can vary from court to court, and meeting the standard in any court can be difficult. However, there are two tests courts generally use to determine whether you’re experiencing undue hardship from your student loans. Depending on the court, there may be other tests that are used to determine whether you qualify to include student loans in your bankruptcy discharge, but these are the most common:
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Iuliano says the outcome and how much student debt is forgiven, if any, can have a lot to do with what particular judge you end up with and what the rules are in that bankruptcy district.
Some of that is because of the language of the original statute stating that student loan borrowers have to meet a threshold of “undue hardship,” he says. Iuliano says Congress has never defined what that means, so a lot of discretion is left up to the courts and the particular judge you get.
Harrison Wadsworth, a consultant for the Consumer Bankers Association, notes that most student loans are issued by the government. But for loans from private lenders, he says relaxing the bankruptcy rules to make it easier to reduce or eliminate student debt could push up interest rates. “Lenders would have to be careful about making loans and probably have to charge more for them,” Wadsworth says.
Lauren eventually found a lawyer who took her case and charged her about $3,000, doing some of the work pro bono. And going through bankruptcy, she got her debt reduced from about $200,000 to around $100,000, with the bulk of that reduced to a 1% interest rate.
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Broader Push For Student
A handful of recent cases have poked holes in the argument that student debt is forever. Last year, 51-year-old Katy Adams won a discharge of $41,000 in student debt when the government’s lawyers asked for the personal bankruptcy case to be dismissed before the judge could rule on whether she met the undue hardship standard.
A court in Nebraska relieved a 50-year-old grandmother of nearly $90,000 in debt, finding her prospects of finding higher-paying employment uncertain and her ability to continue working two jobs due to health conditions and the needs of her autistic grandson in her care unlikely. And a judge in Poughkeepsie, New York, made waves in a scathing opinion that cleared $220,000 of debt accrued by law school graduate and Navy veteran Kevin Rosenberg.
“ost people believe it impossible to discharge student loans,” Judge Cecelia Morris wrote. “This Court will not participate in perpetuating those myths.”
Amid a broader movement for student-debt relief, some Americans are pushing to make it easier to discharge old loans in bankruptcy. Senators Dick Durbin and John Cornyn introduced a bill last month to include student loans older than 10 years in bankruptcy proceedings, and penalize schools if too many of their graduates go bankrupt.
Loe, too, is hoping for a change in the bankruptcy laws. Until that happens, she said, “the No. 1 thing for people to understand is to not pay attention to the statistics.”
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.
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Bankruptcy And Financial Aid
This page answers common questions about the relationship between bankruptcy and financial aid, such as student loans. The first answer concerns the impact of bankruptcy on eligibility for student loans. The second answer discusses whether student loans can be discharged through bankruptcy.
Thanks to Pat Somers of the Univ. of Arkansas at Little Rock and Art Bilski of the Illinois Student Assistance Commission for their assistance with this section.
Bankruptcy and Eligibility for Financial Aid
Will a bankruptcy affect a students future eligibility for student loans and other financial aid?
The answer to this question is a complex one because several issues are involved. It depends on the nature of the student loan programs and the type of bankruptcy.
Whatever the circumstances behind the bankruptcy, the student should talk with the financial aid administrator at the school he plans to attend, and explain the situation. The financial aid administrator may be able to guide the student to certain loan programs or lenders that may fit his needs.
Generally speaking, a bankruptcy should have no impact on eligibility for federal student aid.
The anti-discrimination rules appear in 11 USC 525:
Discharging Student Loans Through Bankruptcy
- if the borrower files an undue hardship petition
Types of Bankruptcies
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Can Your Debts Be Erased In Student Loan Bankruptcy Yes Heres How
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Can Student Loans Be Discharged In Bankruptcy
If you want your student loans and other debts discharged outright, youll need to file a Chapter 7 bankruptcy. But keep in mind theres no guarantee your student loans will be discharged unless certain other criteria are met. If you dont qualify to file Chapter 7, you may be able to restructure your student loan payments or have them discharged in a Chapter 13 bankruptcy. Once your Chapter 13 bankruptcy ends , youll be responsible for repaying your federal student loans if you werent able to prove undue hardship.
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How Does Bankruptcy Impact My Student Loan Debt
In some cases you will be able to include your student loan debt in a student loan bankruptcy, but you must meet certain conditions for your student loan debt to be included in your bankruptcy and eliminated when you receive your bankruptcy discharge.
Need Help Reviewing Your Financial Situation?Contact a Licensed Trustee for a Free Debt Relief Evaluation
Generally you can only include student loan debt in bankruptcy if you have not been a student for more than 7 years, or for less time if you meet the hardship requirements.
When you declare bankruptcy you will be ineligible to receive further funding from the Student Aid funding program in your province for a certain period of time.
In BC, the length of time you will be ineligible for funding is 10 years or 8 years if you declared bankruptcy under financial hardship conditions.
Student Loan Bankruptcy: The Seven-Year Rule
When you receive your bankruptcy discharge you will only receive a release from the obligation to pay off your student loans if you file for bankruptcy at least seven years from the day you stopped being a part-time or full-time student.
In other words, you can only eliminate student loan debt in bankruptcy if you stopped being a student more than 7 years ago.
If you were a student less than 7 years ago, your student loan debt cannot be included in your bankruptcy and you must continue paying your student loan debt or seek another option for getting out of debt.
Student Debt Less Than Seven Years Old
If your student loan is less than 7 years old, then you still have student loan forgiveness options that can help make repayment of your student debt easier. Negotiate new payment arrangements. Try contacting the student loans office to negotiate a new payment arrangement. Repayment assistance is available through the National Student Loan Service Centre and their Repayment Assistance Plan. You can:
- Ask for a temporary reduction in payments including making interest only payments.
- Ask for more time to repay your student debt. You can extend your payment period for up to 14.5 years.
- Apply for a hardship reduction. The government will reduce your interest costs for the first 10 years and may reduce the principal owing after 10 years. However, you must prove financial hardship to qualify, including meeting an income threshold and approval is not guaranteed.
Be aware that the first two options will keep you in debt longer and will increase the total interest you pay on your student debt. The hardship option is the only option, other than bankruptcy or a consumer proposal, that will reduce the total student loan payments you make over time. If you are successful in negotiating new student debt repayment terms, do your best to maintain the payments to sustain your agreement. The area of bankruptcy and student debt can be complicated. We answer more questions on our student debt help FAQ page.
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Old Federal Loan Programs
There are a few federal student loan programs that are no longer available. But, they still show up online when you do a search for federal loans, so itâs good to know what they are.
Federal Family Education Program
Under FFEL, the loans were made by private lenders, insured by guaranty agencies, and then insured again by the federal government. Basically, if the student defaulted on a loan issued under FFEL, the federal government would pick up the tab and repay the private lender. No new FFEL Program loans have been made since July 1, 2010.
Federal Perkins Loans
This type of federal loan has a low interest rate and is reserved for students with exceptional financial need. No new Perkins Loans have been made since September 30, 2017.
By Cara ONeill, Attorney
If youre facing severe debt problems, filing for bankruptcy can be a powerful remedy. It stops most collection actions, including telephone calls, wage garnishments, and lawsuits . It also eliminates many types of debt, including credit card balances, medical bills, personal loans, and more.
But it doesnt stop all creditors, and it doesnt wipe out all obligations. For instance, youll still have to pay your student loans and arrearages for child support, alimony, and most tax debts. Read on to learn more about:
- what you can expect in both Chapter 7 and Chapter 13
- the benefits offered by Chapter 13 alone, and
- things that cant be accomplished by filing for bankruptcy.
What To Do If You File For Bankruptcy
If you have student loans and file for bankruptcy, it may be hard to know if your student loans will be included in your debt reduction. Thats where the attorneys at Licata Bankruptcy Firm can help. We only work on bankruptcy cases and can figure out your best possible solution.
When working with Licata Bankruptcy Firm, well look at the following factors when evaluating your student loan debt with your case including:
- The ratio of your overall debt to student loan debt
- If payments have been made on student loans at all, some, or not at all
- If you have tried to get a deferment or forbearance
- What may be preventing you from paying off the student loan debt
- If you have tried all other efforts to maximize income and minimize expenses elsewhere so you could pay off the student loan debt and,
- If you cant pay now, will there be options in the future to pay off the debt?
These arent questions you should try to navigate through on your own. Schedule a free consultation with Licata Bankruptcy Firm today to get started on a path of being debt-free.
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