Hardship discharge student loans
Some student loans are automatically discharged if you list them correctly and file properly. Not waiting the proper length of time to discharge them is probably malpractice. Not waiting the proper length of time to discharge income taxes can also be fatal. This is the quick 4 part checklist we use to manage student loans or hardship discharge student loans in bankruptcy. Even if you can’t automatically discharge a student loan the law allows for a hardship discharge of student loans if you meet the standards.
Even some attorneys and doctors have obtained total or partial discharges of student loans. Three empirical studies have shown about 50% of the people that try get a discharge obtain partial or complete discharges. Our website and Manual discusses how to manage student loans with IBR, Chapter 13 and how to get the hardship bankruptcy discharge for student loans. Please like, or link to this site, our manual and checklists so it can help others. The only way you found this information is because someone else liked us and linked to us.
Student loans can only be discharged in bankruptcy if you prove that repaying the loan is a hardship to you and/or your family. It is very difficult to get a hardship discharge of student loans and you must file an adversary proceeding to get it. The majority of student loan borrowers can never meet the hardship standard. Most jurisdictions require you to exhaust all your other options first and use the three factor Brunner Bankruptcy test to see if you can discharge student loans.
First you must prove you cannot support, based on current income and expenses, a ‘minimal’ standard of living for yourself and your dependents if forced to repay the loans. Second that other circumstances exist indicating this state of financial affairs is likely to persist for a significant part of the repayment period of the student loans; and, third you have made good faith efforts to repay the loans. This normally means you have tried to make the payments and often means you have attempted the Income Based Repayment (IBR) loan program where your loan payments are based on your ability to repay. However if there is no ability to repay that may be futile and not required. Only after you are certain that you comply with these three factors can you attempt a discharge of student loans.
If your loans are governmental then the Income Based Repayment (IBR) loan program is probably the best method to manage your student loans. Payments are graduated on a scale from $0 per month upwards to never over 10 % of your income. At the end of 20 years the loan is forgiven (discharged). National Student Loan Data System allows you to check if the loan is government or private. The bankruptcy judge normally requires you to attempt an IBR loan before he will consider a hardship discharge to exhaust all of your other options first. The department of education has strong abilities to collect including interception of government benefits, wage garnishments, tax refund interceptions and DOJ lawsuits. Private lenders must sue to enforce collections and few of the private lenders are willing to sue to collect. Simply moving to other states may defeat them from being able to collect. Many states have 3-5 year statutes of limitations. Others like North Carolina do not allow meaningful garnishments. Kentucky has a 15 year statute of limitation and any payment starts the period over again.
There are many programs with the Department of Education that allow the loan to be discharged and forgiven, public service, disability, death, closed school, etc. There are few or no such programs for private lenders. The government loans are at low interest rates and are not normally in default until they are 9 months past due. The private lenders have higher interest rates, are often cosigned, often charge adjustable rates and are in default 30 days or less after the payment was due. There are few or no defenses to DOE loans including there is no statute of limitation defense to government student loans. Essentially the statute of limitations and all of the defenses you would use against a credit card apply to private student loans. Before 2005 private student loans were just as dischargeable as any other unsecured debt. If you filed a bankruptcy cases prior to October 17, 2005, and the loan program was issued, insured, and administered as a for-profit, private (non-government) entity, the loan/debt may have been discharged. Only government loans can be consolidated into an IBR. However government loans that are in default can be rehabilitated and the default credit reporting can be removed by making 9 of 10 on time payments allowing home purchases.
You often qualify for the bankruptcy hardship discharge or partial bankruptcy discharge if you cannot get into an IBR loan and are permanently at the poverty income level of income. But persons above the poverty level may still qualify for a hardship discharge. You can often fully pay government student loans outside a Chapter 13 while you pay private unsecured loans inside the plan under Section 1325 if the government student loan will still be due after the plan. Courts also have the authority to issue a partial discharge of the student loan, when a debtor has some ability to repay but all of the three elements still must be shown. For real information see our Checklist to help you manage or discharge your student loans, PowerPoint Presentation, read our manual and here is a link to resources page.
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