Articles Posted in Student Loans

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Because of the historic economic impact  of COVID-19, economists are predicting a “tsunami” of personal bankruptcy filings.  Well-known businesses like J. Crew, Beall’s, Goody’s, Gold’s Gym and Neiman Marcus recently filed for bankruptcy protection. Most major airlines could face bankruptcy without a government bailout.

Americans who have become used to using credit cards as a stop-gap measure to survive pay-cuts might not be able to rely  on this method since nearly 50 million Americans just had their credit card limits cut.

For centuries, companies have used bankruptcy as a tool to survive, reorganize or to shut-down. Several airlines have filed bankruptcy over the past three decades, primarily to break contracts and modify pensions.

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Student loans affect all generations of Americans, from millennials to baby boomers. A recent study in Detroit showed that people nearing retirement age are one of the fastest growing demographics with student loan debt. In this election year, many presidential candidates are promoting ways they would address the student debt crisis. Younger people who have just earned their degrees are having troubling buying houses since their student loan debt is so burdensome.

With tax season upon us, some student loan borrowers are shocked to find out that their student loan servicers can intercept their tax refunds in order to pay delinquent student loan debt.

While Americans can file bankruptcy to get relief from most types of debts, student loans are among the types of debts that a debtor may not discharge in bankruptcy unless paying them back would be an “undue hardship”  on the debtor. (This standard is extremely hard to meet and in one older case from Jacksonville, even a lawyer who said an auto accident left her disabled, failed to meet the high standard). In order to address this issue, the U.S. Bankruptcy Court for the Middle District of Florida (Jacksonville, Orlando, Tampa and Ft. Myers) recently instituted a “Student Loan Management Program” (Program).

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Student-Loans-150x150The Bankruptcy Abuse Prevention Act of 2005 made student loan debts non-dischargeable through bankruptcy. Why do you ask?

The federal student loan program was initially created with the goal of making a college education affordable for all children. Originally student loans were only meant to help fill the bridge between grant money and the cost of tuition, books, and housing. In other words, student loans were only supposed to supplement education costs. Student loans were never meant to completely cover the full costs of receiving a higher education.

Instead of being based on your creditworthiness like most other types of debts, student loans are only based on your need. Due to this need v. creditworthiness approach, Congress did not feel that student loans should be dischargeable through bankruptcy except under very extreme circumstances that are completely out of your control. Specifically, Congress did not want to put the burden of unpaid student loans onto the taxpayers. Continue reading →

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“The most terrifying words in the English language are: I’m from the government and I’m here to help.” Ronald Reagan.

May 5, 1999, a day to be remembered. Why you ask? Well that was the day that Congress debated for three minutes and passed an amendment, offered by then Congressman and now Senator Lindsay Graham, which made privately-funded student loans non-dischargeable under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Continue reading to find out why there may be a possiblity to discharge your Student Loans in Bankruptcy

Student loans comprise the greatest amount of consumer debt in the United States, recently surpassing credit card debt. With the most recent recession and a stagnant job market, college graduates are suffering from the burden of overwhelming monthly loan payments on their staggering student loan debt.

The federal government meant well when it created student loan programs. The goal was to afford every child an opportunity to attend college. The loans were created to bridge the gap between student grant monies and the cost(s) of tuition, books and board.
Continue reading →

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Student Loans Dischargable In BankruptcyLet’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.

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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.

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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.

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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.

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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.

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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.

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