Struggling with Student Loan Debt May Harm You from More Than You Realize

Is Student Loan debt preventing you from?

  • Buying a home
  • Getting married
  • Saving for retirement
  • Credit with low-interest rates
  • Providing a minimum standard of living for your family
  • Providing a minimum standard of living for yourself
  • Hope for a better financial future

Have you filed bankruptcy – ever?

  • Closed case:  You may reopen your bankruptcy case and file an adversary action to prove to the court that payment of this debt is an ‘undue hardship’ and should be ‘forgiven’.
  • Open Case:  You may file an adversary action to prove to the court that payment of this debt is an ‘undue hardship’ and should be ‘forgiven’ with the entry of the ‘Discharge of Debtor’ Order.

Why choose Bankruptcy instead of Income Based Repayment Plan for Federal Loans? 

  1. The relief of a bankruptcy discharge is

  • immediate
  • permanent 
  • Without tax liability for the amount of debt forgiven in the bankruptcy
  • Provides certainty – even if only part of the debt is forgiven
  1. The 25-year Income Based Repayment Plan (“IBRP”) is

  • not immediate – 25 years is a long time
  • not permanent – every year financial documents must be provided to the Department of Education.  That means you have: (i.) 24 opportunities to fail  and (ii) 24 opportunities for the Department of Education to change your monthly payment amount
  • With a tax liability – the amount of debt (interest + principal) forgiven at year 25 is report to the IRS, you are required to include it as income, which may mean that you will have to pay taxes on your ‘forgiven debt’
  • interest continues to accrue on the unpaid debt
  • Provides uncertainty, for 25 years you will be eligible for higher payments on an ever-increasing debt depending on the standards the Department of Education uses to evaluate your ability to pay.  Standards that may change every year.

Can you prove that payment of the debt creates an ‘undue hardship’? 

  1. It is ‘unconscionable’ to require you to take steps to earn income or reduce expenses
  2. You are living at a ‘minimal standard’
  3. You can ‘demonstrate insurmountable barriers’ to your ability to repay the student loans
  4. You have health or employability issues that persist or will persist for a significant portion of the loan repayment
  5. You can show that even if you moved, your income wouldn’t increase or your expenses wouldn’t decrease
  6. You provide essential services to a family member that no one else can provide and this continue for a significant portion of the loan repayment
  7. You have stayed in touch with the Student Loan creditor to defer, forbear, or negotiate a payment plan

Can you prove the student loan is not the type that is protected by bankruptcy code?

  1. The school has gone out of business
  2. It is tuition, not a student loan?
  3. It is a ‘mixed loan’ that paid expenses that do not qualify as Student Loans
  4. It was a cash advance, revolving line of credit or credit card debt
  5. You cannot deduct the interest paid on the debt on your tax return
  6. The student was not an eligible student
  7. The funds were not disbursed in a ‘reasonable period of time’

Struggling with these debts by yourself may prevent you from more than you realize. There is no good reason to endure the stress of crushing debt that prevents providing the minimal standard of living for yourself and/or your family.  This stress affects you and your family with lasting negative results.  You may never build an adequate retirement plan, always pay more to borrow, experience low credit scores that may knock you out of the competition for a job and handicap your children’s’ future because you cannot provide necessities for them.

There are solutions.  Challenging the Student Loan Debt in Bankruptcy may be the best solution for you.  If, when you read this article, the information offers hope, please take the time to speak with an attorney knowledgeable in bankruptcy and student loan law to explore your remedies.  You won’t know your options unless you ask.

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