Jacksonville Bankruptcy Lawyer Blog

Let's face it, when student loans were made nearly impossible to discharge in bankruptcy, lenders realized they could hand over as much money as they wanted to to kids with no risk. Schools could then charge whatever exorbitant fees they could convince students to sign up for and could give them an altogether useless degree in underwater basket weaving. Since parents have ritualistically repeat the mantra, "Go to college." since the child was a mere babe, it's easy to see why our young graduates owe more than $1 trillion dollars in total.
Rule 11 U.S.C. 523 (8) governs the discharging of student loans in bankruptcy cases. In summary, it requires that an undue hardship to the debtor or their dependent would occur were the loan(s) not discharged.
Judges have had fun in deciding what an "undue hardship" is, but have basically boiled it down to the following: An undue hardship occurs if a debtor can show that they (1) cannot maintain, based on current income and expenses, a "minimal" standard of living for themselves and their dependents if forced to repay the loans, (2) additional circumstances exist indicating that the debtor's financial situation is likely to persist for a significant portion of the repayment period for the student loans, and (3) they have made good faith efforts to repay the loans. As each of these three prongs must be proven to discharge the debt, this is a hefty standard. This has been made especially difficult since the passage of the 2007 "College Cost Reduction Access Act", which created the Income Based Repayment plan. Income Based Repayment reduces Federal Student Loan payments to 15% of the difference between the debtor's gross income and 150% of the poverty line. Without forcing you to do complicated mathematics, I will say that it makes student loan payments very manageable. As a result, hardships are impossible to prove if the loans can qualify for the Income Based Repayment option. Income Based Repayment allows you to pay a fraction of your income for ten to twenty-five years depending on the type of employment you have. At the end of the repayment period, the U.S. Government discharges your remaining debt, i.e. pays your loan.
So, we've gone from a system where we used to force private lenders to be responsible with their lending practices by allowing debtors to discharge irresponsibly large loans in bankruptcy, to a system where we allow private lenders to lend as much as they'd like to new students and have our government pay those loans off after a period of time and a repayment of a fraction of the debt.
Regardless of the arguments against the policies of this system, it is still possible to discharge student loan debt even if the loans qualify for Income Based Repayment and that is by a simple procedure known affectionately in the legal world as a "default judgment".
A default judgment can occur in nearly every kind of case. It occurs when a petition, complaint or motion is filed and served upon a respondent. Service in Florida generally requires a twenty day period to respond to what was served. If no response is filed with the court or the petitioner, a default can be entered by the clerk of the court and then by the judge. It works like this: I say that a loan can be discharged in a bankruptcy for reason X. Regardless of the merits of reason X, if the respondent fails to answer in sufficient time, the court has to rule in my favor. This happens in divorces very frequently. If the wife says the husband should surrender his interest in all personal property and he's properly served with the document and fails to respond, he's just surrendered his interest in all personal property. Failure to object to these terms is considered an agreement with them.
Default judgments can be attempted against student loan companies by serving their corporate headquarters and waiting for a response. The recent case of In Re Gourlay, this very fact pattern emerged and Miss. Gourlay was successful. Still, discharging student loans is risky business, but not a business that should be overlooked 100% of the time. If you have the need to file bankruptcy anyway and it looks like a hardship could be argued, talk to your attorney about the possibility of discharging your student loans or contact a Jacksonville Bankruptcy Attorney or call us at (904) 685-1200 for a free consultation.

One of the worst things I see happening to the youth of America is caused by their pursuit of education. From kindergarten through high school every student is instilled with the mantra, "Go to College" or the classic, "If I could go back in time I'd study harder." Not to say that higher education is inherently bad, obviously, I chose to take that path myself. No, it's not the education that causes a problem, it's the loans taken out to pay for that education that's a problem.

These loans wouldn't be a problem if the income from the jobs that followed the loans was sufficient to pay the debts. The problem graduates are facing is that those jobs either don't pay enough to make the monthly loan payments or the jobs don't exist at all.

Fortunately, for those with federal loans there are programs like Income Based Repayment. Income Based Repayment or IBR, allows graduates in the private sector to pay a monthly payment based on a percentage of their gross income. After 25 years of payments, the remaining debt is discharged. Some people feel that this is unfair because those people signed into those debts with knowledge of the interest rates. There is truth in that, however most, if not all of those students did not anticipate the economic collapse of 2007.

Student loans are one of the only unsecured debts that remains almost always exempt from discharge. You can file bankruptcy again and again but the student loans will remain and if the loans are private (i.e. not government), there are few if any alternative repayment plans. Some people I've encountered owe $2,000 per month, which is more than they make. They can't discharge the debt in bankruptcy and they can't modify the loan terms. Their only alternative is to let the loan garnish their wages. In Florida, the maximum wage garnishment is 25% as long as the debtor makes less than a threshold amount. Couple that with degrees that offer no jobs and the student is basically a lifelong slave to the loan company, sometimes owing interest rates higher than they could ever pay.

Legislatures have discussed remedies for the issue, but no bills have passed Congress to address the issue. Hopefully, students will soon realize that some degrees are actually traps rather than paths to success or our legislature will be contending with an ever-growing population of lower class with little to no hope to pay their debts.

There is current legislation before both the US Senate and US House of Representatives that would allow private school loans to be discharged in bankruptcy, as most of them were before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Legislators are reasoning that there is a strong interest in not allowing federally backed student loans to be discharged in bankruptcy, but these reasons do not apply to private school loans and so they are rethinking the laws. The New York Times wrote an interesting article on the topic.

To see if your loans qualify for discharge, contact a Jacksonville Bankruptcy Attorney today to discuss your situation.

The average student loan debt for a four-year degree is over twenty-three thousand dollars. Many people understandably want to get rid of this debt. However, student loan debt is very difficult to discharge in bankruptcy.

Generally, student loan debt is nondischargeable unless the debtor can prove he or she would suffer an "undue hardship". Whether or not you are suffering an undue hardship is up for the court to decide, but it's important to realize that this is a relatively high standard to show. Courts often look at whether you made a diligent effort to pay the debt, find a good paying job, and reduce your living expenses. In actual practice, almost the only way that you are going to get your student loans discharged through bankruptcy is if you are permanently disabled, with no opportunity or ability to get a job to repay your student loans.

If you are in debt and are thinking of filing bankruptcy, contact a Jacksonville Bankruptcy Attorney to discuss what debts can ben discharged and whether filing is right for you.

You've probably heard of people using a "strategic default" on their home mortgages in Florida. This means the homeowner stops making payments because the value of the home is less -- often substantially less -- than the amount remaining on the mortgage. This often makes financial sense; but can it work for something like student loans?

The short answer: no. The obvious point is that student loans are much different than home loans, in that the market for the products (i.e., a home vs. your degree) is much different. Despite this, some people think that ceasing payments on a student loan will prompt the lender (generally the Government) to negotiate a settlement. This is rarely -- if ever -- a wise choice.

Interest on your loan continues to accrue even if you have stopped paying. After a few years, this interest can amount to thousands of dollars in fees that you might not otherwise have accumulated. Further, even if the government decides to settle with you for a smaller amount, that amount will likely be somewhere around 90% of what you originally owed. Since you've accumulated that additional interest, that settlement might not be less at all.

In the meantime, while you're withholding payments, the Government will be using the laws they've created in order to get what's owed to them. They can garnish your wages up to 15%, take your tax refunds, and even seize any lottery winnings in order to get what's owed to them. Even declaring bankruptcy will likely not discharge your student loans (in most circumstances).

Now, here's some good news: it is possible to lower your student loan payments. You can request an income-based repayment or seek debt settlements without going into default. Visit target="_blank">this website to learn more. If you have questions about your student loans or are having trouble paying your bills, contact a ">consumer law attorney today to discuss your options.

Yes, there is, but it is extremely difficult and rare. Student loans are classified as non-dischargeable debt, meaning that they are still due even after filing bankruptcy. However, there is a way to get the court to discharge them: prove undo hardship. To do this, you must convince the court that you cannot maintain a minimum standard of living and also repay your student loans at the same time, your current bad financial situation is extremely likely to continue, and that you have made an honest effort to pay off the student loans. Although this is theoretically possible, it is very rarely granted by the court. A court might consider this route if you are permanently and totally disabled.

If you have questions about whether your situation might warrant a student loan debt discharge, contact a Florida bankruptcy attorney to discuss your case.