Student loan debt is larger than credit card debt. We usually consider issues of debt relief with respect to credit cards, medical bills, business debts, mortgages, and other similar debts. But a student loan debt is often the biggest debt that confronts individuals and their families. Unlike other debts, the student loan debt may appear to be unsolvable, but potential solutions are available.
Bankruptcy and non-bankruptcy student loan remedies should be reviewed.
Student loan debts usually cannot be discharged in chapter 7 bankruptcy. The burden of establishing “undue hardship” is extremely high. A lawsuit within a bankruptcy case called an adversary complaint must be filed to establish an undue hardship. There is also legal authority that can permit a partial discharge based on undue hardship to eliminate a portion of the student loan debt. These remedies are more likely to be successful as to private student loans then non-private student loans.
A chapter 13 bankruptcy can also provide student loan relief. A chapter 13 plan would make payments to all unsecured creditors including student loans based on the individual’s budget. At the end of the plan, other debts would be discharged, but the balance remaining to the student loans would still be owed.
A problem with the chapter 13 payment plan bankruptcy for student loans is that interest on the student loans would continue. More could be owed at the end of the plan than was owed at the beginning. To avoid this problem, under certain circumstances in Fort Lauderdale chapter 13 bankruptcy cases student loans can be separately classified so that the payments can be separately paid to student loan creditors. Contact us for more details.
Non-bankruptcy remedies should be analyzed to obtain relief on student loans. The analysis starts with whether the loan is a qualified educational loan that is a private student loan or federal student loan. There is a greater availability of payment relief with federal student loan programs.
In certain circumstances, the entire loan can be canceled or discharged, such as based on total and permanent disability. Public Service jobs can also now be a basis of obtaining a discharge of the student loan debt.
The loan status of federal loans should be reviewed to determine whether the loan is current, delinquent, or in default. Pros and cons of rehabilitation and consolidation should be discussed. There are federal loan programs that could enable you to actually reduce what has to be paid over time based on your income, though eventually this savings would create possible taxable forgiveness of debt income. The Income Contingent Repayment Plan (ICR), Income Based Repayment Plan (IBR), and the newer Pay As You Earn Plan (PAYE) can greatly reduce your payments. Lump sum settlement payments at a discount are also possible for those who are able to raise the funds.
Private student loans are not covered by these flexible federal programs, but settlement negotiations can provide relief. Lawsuits can be defended to make the private student loan company prove its case.
Don’t let student loan collection agencies mislead you. Not only might you be able to afford and establish a reasonable payment arrangement, you might have a right to sue the collection agency for improper collection practices