After doing your best in school to improve your education, student loans debt can be hard to cope with. Most graduates do not have a stable income source to cater to their needs, leave alone pay their loans. However, in bankruptcy, student loans are not dismissable. By filing bankruptcy chapters 7 or 13, you can make it easier for you to pay the student loans by freeing up the funds.
If you are going through financial hardships because of your student loans, contact the Los Angeles Bankruptcy Attorney and we will help you navigate the whole process. We have the skills and experience needed to handle bankruptcy cases. We will also do our best to get you the payment plan that suits you best and get the relief you need.
How to Discharge Your Student Loans in Bankruptcy
Discharging your student loans is the last process of the bankruptcy process. The following are the steps you need to follow:
Find a Bankruptcy Attorney
Although an attorney is not necessary, having an attorney with skills and experience in student loans is crucial because he/she will help you navigate this complex and tiring process.
The cost of filing for bankruptcy is different depending on the complexity of your case and your location. Plus, an additional fee for your attorney.
File for Chapter 7 or 13 Bankruptcy
Before your student loan is discharged, you should file for bankruptcy. Your bankruptcy attorney will help you advise you on the type of bankruptcy for you, either chapter 7 or 13.
File a Complaint to Start Adversary Proceedings
To clear your debts by bankruptcy, you need to file an adversary proceeding by filing a written complaint summarizing your case. You can do this by yourself, but it is more effective with a bankruptcy attorney's help.
When to File an Adversary Proceeding (Chapter 7)
When using the chapter 7 plan, you are supposed to file for your adversary proceedings as soon as you file for your bankruptcy.
In case you have completed chapter 7, and your case has commenced, you can file for the advert proceedings to get your debt discharged. The time this takes depends on your location.
When to File For an Adversary Proceeding (Chapter 13)
In this chapter, the bankruptcy court's rules in your location determine when you can file for an adversary proceeding.
Despite the time you file, if you succeed in the adversary proceeding, your debt will still not be over because you have to wait and complete the required chapter 13 payments plan.
When Does a Student Loan Qualify Under Undue Hardship?
Meeting the standard of determining undue hardship can be challenging, although different courts use different criteria. However, most courts use two tests to evaluate if your student loan is making you undergo undue hardship. These tests include:
- Brunner Test — With this test, you may dismiss your student loan to bankruptcy on condition that the following factors exist:
- Poverty — That is based on your current earnings and expenses; it would be hard for you to maintain a low living standard for yourself and your dependents if you are still expected to continue paying off your student loan.
- Persistence — your financial status will probably not affect a notable portion of your student loan during the repayment time.
- Good Faith — You have done your best in good faith to repay the student loan.
Circumstances Test Totality
In this test, the court usually goes through all the above-stated factors to determine if you are experiencing undue hardship. The court has the power to decide based on the details and information you gave them.
More tests like Health Education Assistance Loans also apply, but the loan must have become overdue in more than seven years, and the payment could cause you distress.
Your local courts could use other tests. Consult your bankruptcy attorney to know the kind of test used in your jurisdiction.
If you use your mental and physical impairment to show your undue hardship for federal student debt, you don't need to go to bankruptcy court. Under the Total and permanent disability discharge, you may be eligible for automatic loan discharge.
You may also be able to avoid bankruptcy court and file for administrative discharge in case of :
- A closed school
- Unpaid refund, Using false certificate
- Borrower defense
What Constitutes Undue Hardship?
The law court may sympathize that paying your student loans could cause you undue hardship if you cannot provide a low living standard for yourself and dependents if the hardship progresses through the payment period and if you truly attempted to pay your debt before filing for bankruptcy.
When the court says "low living standard," they mean:
- You are physically or mentally ill
- You receive assistance from your relatives or the government
- Your earnings have been less than the federal poverty level for a long time, and there are no signs of improvement
- Your child has a major illness that needs you to take care of them all the time
- Your family income was affected by divorce
- Your main source of income is the disability check
- Your children are solely provided for by the government
Comparing Bankruptcy Options
Chapter 7 and chapter 13 bankruptcy has some differences from the people who are eligible for the eligibility restrictions. More differences include:
- Chapter 7 is a liquidation, while chapter 13 is a reorganization
- In chapter 7, business entities and individuals can file for bankruptcy, but in chapter 13, only individuals are allowed to file for bankruptcy
- Chapter 7 roughly takes four months to receive a discharge, while in chapter 13, you receive a discharge after completing all the payment plans, which usually take 3-5 years
What Outcome to Expect
There are three possible outcomes after filing the discharge of your student loans. They include:
- Full discharge — Depending on various factors, the court may conclude that your student loans will be fully discharged, and you will not have to pay anything.
- Partial discharge — Based on your situation and your ability to repay your debt, part of your loan may be discharged, but you will have to cater to the remaining part.
- No discharge — In some cases, you may be expected to pay your student loan balance in full amount. But the court may change your rates and some of the loan terms if it learns that those changes will help you make the repayments easily.
What Happens if Your Student Loans Are not Discharged?
In case your loans fail to be discharged in bankruptcy, what happens is:
- Chapter 7 Bankruptcy — If your student loans are not an undue hardship, you still owe your lender after your bankruptcy loans.
- Chapter 13 Bankruptcy — The chapter 13 plan provides alternative ways to help you with your student loans.
Other Ways to Pay Off Your Student Loan
Since it is difficult to pay off your student loans in bankruptcy, you should look out for alternative ways to repay your debt. Some of the other possible ways include:
1. Income-Driven Repayment Plan
If your loan is federal, you may be eligible for four income-driven repayment plans. The pans lower your monthly repayment to a percentage that you will pay comfortably with your earnings. The plans also extend your repayment years to 25 years. These changes may allow you to deal with your student loan repayment without having to file for bankruptcy. More so, in case your repayment terms end when you still have a balance, the remainder will be excused, but the money will be reviewed as your taxable income.
Having an income-driven repayment plan provides prompt financial relief, but it also results in huge interests.
2. Deferment or Forbearance
If you have some short-term financial problems, you may be eligible for deferment for the repayment of your student loan. There are not only available federal student loans but also private student loans.
This type of plan allows you to halt your monthly repayments for a period that mainly depends on your situation and the lender. Remember that there will be an interest increase in your loan, which you will cater for later.
3. Student Loan Refinancing
This plan entails replacing your existing loans with a new loan from a private party. The plan applies to those with federal or private student loans. Based on your financial instability and your credit, you may be eligible to lower interest rates than your current rates.
Most student loans refinance lenders allow repayments of up to twenty years; hence you experience reduced rates and the extension of the term.
4. Switch Your Repayment Pans to Federal Loans
You may adjust your payment plans and be allowed to pay your student loans in thirty years, which means that your monthly payments will be reduced.
5. Loans Discharge Due to Disability
If you have any disability, you can have your student loans discharged without going through bankruptcy proceedings.
If you are disabled, you can get the total disability discharge, and if you are permanently disabled, you can get the permanent disability discharge. Though most private loan lenders do not offer loan discharge due to disability, some federal do.
6. Look For Alternative Loan Forgiveness Programs
Student loan forgiveness programs can create a solution for you to clear your debt faster. Some of these programs include:
- Public Service Loan Forgiveness — This program is meant for people who wish to work in a certified public service position for more than ten years. It aims for full-time employment with a United States government organization or a non-profit organization. Still, you are supposed to make 120 timely payments on an income-driven repayment for you to qualify. Note that forgiveness under public service loan forgiveness is not a taxable income.
- Teacher Loan Forgiveness — This program applies to full-time teachers who have been certified teachers for more than five academic years at an educational service agency or a low-income school.
If you are eligible for this program, you can get up to $17500 for loan forgiveness based on your teaching subjects. Teachers who are likely to receive a high level of forgiveness with this relief teach sciences, mathematics, and special education teachers.
- Nurse Corps Loan Repayment Plan —This program is meant for advanced practice or licensed registered nurse or a nurse faculty member. Other requirements include working full-time in a certified high-need hospital and attending a licensed nursing school.
After qualifying for this plan, you can receive up to 60% of your outstanding student loans in two years. After these years, you can file for an additional year with a 25% forgiveness of your initial student loan.
- Military Members Loan Forgiveness — There are ways in which military members can have their student loans paid off by the government. The first one is the "National Defense Student Loan Discharge benefit." This program enables you to get part or all of your student loans canceled; if you are eligible for an imminent-danger or hostile-fire pay.
If you completed your military service before 14th August 2008, you are eligible for 50% forgiveness, but if you completed your military service after that date, you might be eligible for 100% forgiveness. Note that this program is applied for Federal Perkins Loans.
The second one is the repayment program that gives you up to $50,000 of your student loan forgiveness. For you to qualify for this program, you have to complete a fit service contract.
- The Forgiveness Programs for Doctors — Most of the forgiveness programs for doctors require you to work in a high need area for a certain period, but your forgiveness amounts are high.
- Forgiveness Plans for Lawyers — Although some repayment programs are offered through certain law schools and issued to their specific students, there are also two major repayment programs for lawyers on a national level. These are:
- Attorney Student Loan Repayment Program — This program can help you get $6,000 of your student loan balance cleared every year until $60,000.
- John R. Justice Student Loan Repayment Program — If you are in this position, you can get up to $10,000 every year with $60,000 as the maximum forgiveness.
How to Get Student Loan Forgiveness
Programs that offer student loans forgiveness are a lifesaver for most graduates. It is important to gather all the necessary information on the programs before applying for one.
Although different programs have different rules, there are general requirements that you must meet to qualify for these programs:
- You should have a certain type of student loan and remember that most forgiveness programs only apply to federal student loans.
- It would be best to work in a low-income area or a high need area in a particular job.
- It would be best if you agreed to work for a particular period.
- It would be best to make timely repayments on your debt as you work on acquiring forgiveness.
If you have been sued for not paying your student debt, which rarely happens, you may be able to raise some defense. Some of the common defenses include:
- You made the payments, but the money was not credited to the specific account
- You are making your repayments currently
- The amount was wrongly calculated
- That you never accepted to pay the loan(could be someone else is using your name)
- The student loan has been discharged in bankruptcy
- The lender has taken long to sue your(in case it is a private student debt)
- Breached contract
Government Loans V.S. Private Loans
The federal government gives most student loans. Private institutions like banks also lender loans to students because not all students can afford to fund their studies without help. However, it does not matter if your student loan was from the government or the private sector. To discharge your loan in bankruptcy, you must prove that the loan could cause you undue hardship.
How Can a Bankruptcy Attorney Help You?
Chapter 7 and 13 are a complex process and tough to navigate. You have to ensure that your payment plan meets certain directives, and your lenders will try their best to make you pay more. Some of the benefits of working with a bankruptcy attorney include:
- Your attorney will advise you on the "perfect" time to file bankruptcy. It will help you to avoid financial problems in the future
- Help with all the paperwork needed to file for a bankruptcy petition
- Help you to get a fair plan that could easily lead to discharge
- He/she will also defend you from creditors who jeopardize your rights
- Represent you during the meetings with your creditors
Find a Los Angeles Bankruptcy Lawyer Near Me
For years now, the Los Angeles Bankruptcy Attorney has helped many individuals get their student loans discharged. We always do our best to find the most suitable repayment plan for you while still protecting your rights. Bankruptcy and student loans is a complicated process, which is why you should let our expert bankruptcy lawyers help you. Call us today at 424-285-5525 to know how we can help you.