Articles Posted in Student Loans

Most unsecured debts will be wiped out in a Chapter 7 bankruptcy.  Unsecured means that the debt does not have any property pledged as security.  This includes credit cards, medical bills, lines of credit, payday loans, overdraft protection, signature loans, and personal loans.  There are certain types of unsecured debts that cannot be eliminated in bankruptcy.  The two most common types of debt that people think cannot be done away with are student loans and taxes.  These can be wiped out, but only if you meet special circumstances.  Student loans are not wiped out in bankruptcy, unless you can prove that paying them would create an undue financial hardship for you or your family.  Income tax debts can be eliminated, under certain circumstances, if they are more than 3 years old before the date you file the bankruptcy.

Did you cosign for a student loan for your child or spouse?  Co-signers and the student  borrowers both owe the full amount of the loan.  The primary borrower might pay the loan now, but if they stop paying, those debt collectors will be coming after the the co-signer for the loan.  ***It’s important to keep in mind that the student borrower could file a Chapter 13 and protect you as the co-signer should they get into a situation where they cannot make their payments or, if necessary, you could file a Chapter 13 to protect yourself.*** But back to our discussion…

Co-signers can be released from student loans.  It’s tricky, but in many cases there is a way out for you.  The facts depend on whether it is a federal loan or a private loan and the terms of the loan.

For instance, if the primary borrower for a federal student loan dies, then the loan can be discharged and the co-signer is released.  It works the same way if the primary borrower becomes permanently disabled.

Student loans are not usually wiped out in bankruptcy like other debts (although bankruptcy can provide assistance).  But the court still requires that you list your student loan debt in the bankruptcy, since this is a debt that you owe.  This can be difficult, especially while they were in forbearance, if you have not kept track of your loans

For federal student loans, you can locate all of your lenders and student loan debt on The Department of Education website. It’s called the “National Student Loan Data System”.  Go to www.nslds.ed.gov and click the “Financial Aid Review” button, and just follow the instructions. This will give you a print out of all your student lenders and their contact information.

For private student loans, you can’t go to a single website that has information about all of your private student loans.  However, private student lenders may be reporting your loans to the credit bureaus and you can locate their names by requesting a free credit report at www.annualcreditreport.com.

A garnishment is an order from a court that is sent to your employer requiring them to withhold certain amount of money from your paycheck. This money is then sent to the creditor. Mississippi law limits the amount of money that your creditors can take from your wages to 25%. Most creditors are limited to the 25%, but some creditors like the IRS, State Taxes and Child Support are allowed to get more.

What Is The Process For Getting A Garnishment?

1. A creditor must file a lawsuit against you and serve you with a summons telling you to come to court.

If you are having trouble paying back your student loan debt, you may be relieved to hear that the Department of Education has created new rules that will give you more protection from debt collectors collecting on federal education loans.  These new regulations should make it easier for you to get your loans out of default.

These rules do not apply to private student loans, only to loans made or guaranteed by the federal government.  If you are in default you can”rehabilitate” loans by making nine “reasonable and affordable” on-time payments. This will allow you to get out of default and become eligible for further federal student aid or other repayment programs.

Some private debt collectors who were collecting on federal loans were failing to offer payments that borrowers could afford; instead offering payments based on a percentage of the borrower’s total debt.  Such payments meant increased commissions for the collection agencies, but were unworkable for borrowers.  Debt collectors were also demanding minimum monthly payments without telling people about the more affordable alternatives, even though the laws of federal student aid does not require those minimum payments.

Possibly, but first you need to understand that a Chapter 13 plan is not based on your income.  It does not fluctuate depending upon how much you make.  The Chapter 13 plan amount depends upon what you plan on keeping and/or what creditors you plan on paying through the bankruptcy.  For example, if you are paying for only your home through your plan, the amount of the payments will be based upon the mortgage amount then that amount spread out over the life of the plan to catch up your back notes.  This amount won’t change unless your mortgage note happens to change.

However, if you are paying for several things – such as a student loan, a vehicle, a home, and a furniture note – through your Chapter 13 plan, the payments could become lower if you decide to stop paying toward the student loan or decide to surrender a vehicle, or the home, etc.

Since a Chapter 13 plan is dependent upon who you plan to pay and what you plan to keep – you can decide to change (with some exceptions) who you are paying and/or what you are keeping in order to lower the note.

I get countless calls from people asking what they can do to about their parents or grandparents who co-signed for them on a student loan and are now facing garnishment, loss of their tax refunds, or even seizure of their bank accounts because they co-signed and the loans have not been paid.

This is a common tactic for debt collection on student loans.  If the student isn’t working – they will go right after anyone who co-signed for the loan.  And they have broad powers – there is no notice required – they can garnish, etc without warning unlike collection of normal debt where there must be a lawsuit filed and judgment obtained first, etc.

It’s pretty well known you cannot wipe out student loans through bankruptcy, but if you file a Chapter 13 bankruptcy, you can stop all action – against you AND against anyone that co-signed for your student loan.  Chapter 13 bankruptcy protects the debtor and co-debtor.  Both do not have to file – just one.  If the co-debtor files it protects the main debtor and vice versa.  For example – mother co-signed for son’s student loan.  Mother files Chapter 13 bankruptcy (maybe even for other reasons) – it protects the son regarding the student loan they both signed for.  Or son files Chapter 13 bankruptcy – it protects the mother.

A debtor must establish a substantial or undue hardship in order to receive a discharge (debt wiped out) of student loan debt in a Chapter 7 or Chapter 13 bankruptcy.  Undue hardship typically means that you cannot maintain a minimally adequate standard of living and repay the loan.  The rule, found in a New York bankruptcy case called Brunner vs New York Higher Education Services Corp., sets out a 3 part road map for discharging student loans in Chapter 7 bankruptcy.  

  1. You must prove that you cannot maintain, based upon current income and expenses, a minimal standard of living for yourself and your dependents if forced to repay the loan.
  2. Additional circumstances must exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period; and
  3. You must have made a good faith effort at repayment.

The definition of student loans now includes private student loans as well as the federally-guaranteed ones and most bankruptcy courts take a hard line on this test, making it extremely difficult to discharge a student loan in bankruptcy, but, in rare cases, possible.    

student loan debtYes and no.  Student loans cannot be discharged in a Chapter 7 or Chapter 13 bankruptcy (unless you can establish substantial hardship).  Changes to the US Bankruptcy Code in 2005 even made private student loans non-dischargeable. BUT – a Chapter 13 does allow you to decrease or stabilize the repayment of your student loan debt for a 3-5 yr period.  In a Chapter 13 bankruptcy, you can decide how much you can afford to pay monthly towards this debt rather than being at the mercy of possible garnishment, seizure of your tax refund, and bank account funds.  If you are facing hardship due to student loan debt, consult an experienced bankruptcy attorney to fully understand all options and strategies available to you as soon as possible.  You may not need to take action immediately, but you need to know what options are available so that you can take action quickly if and when it is needed.