Debt relief for student loans
Earning higher education is a milestone in the lives of many young people today with just under 35% of the population having attended college education.
Unfortunately, for many students, that education comes at an astronomical price. The result is a newly educated population in a challenging job market with a staggering amount of debt to begin their young lives. The result of this unsustainable system is a new interest in student loan forgiveness, the most common of which involve filing for bankruptcy.
While there is a common understanding that student loans are challenging to dissolve, there may be other options for you if you find the payments are unmanageable. Read below for more.
Eligibility for Forgiveness
Whether you are looking to discharge federal loans or private student loans, there are eligibility requirements you must first meet. These come in the form of various tests to determine whether you qualify for loan forgiveness based on need.
The Brunner Test
This is a type of means test that determines whether your student loans are contributing to a financial situation that prohibits you from having a minimum standard in quality of life.
There are three tenants to this test:
The poverty assessment is there to show the courts that between student loans and personal expenses (utilities, food, housing), you are not able to maintain a minimal standard of living.
The average repayment period of student loans is approximately 21 years— a significant length of time. The persistence segment of the Brunner test is there to show your adverse financial situation will persist for most, if not all, of your repayment period. This is particularly true if you still have a large outstanding balance and are over the age of 50.
- Good Faith Efforts
To show good faith, you must be able to prove a history of attempting to repay your loans. This is a safeguard against individuals who may have the means to pay but are looking to evade their debt.
The above factors, when met, prove the criteria necessary for meeting undue hardship requirements— a legal terminology which indicates that repaying loans would make you unable to maintain a minimum standard of living. Proving this point, while not a form of debt relief in and of itself, can greatly help your case if attempting to discharge student loans through bankruptcy.
For individuals who have exhausted all other options and meet the requirements for undue hardship, filing for bankruptcy is often the final possibility to have their loan discharged. This is most commonly completely through a Chapter 7 bankruptcy, though some individuals seek Chapter 13 relief as an alternative.
As a liquidation plan, Chapter 7 seeks to eliminate as much debt as possible. For those in need, this may also mean having student loans fully discharged in bankruptcy. Unfortunately, the risk and impact of Chapter 7 can become remarkably severe, sometimes using valuable assets (such as a car or a home) as repayment for your debts. While there are many exemptions that can save your personal possessions from liquidation, it is something that must be handed with a lawyer to ensure the best outcome possible.
What happens to student loans in Chapter 13 bankruptcy is slightly different, credit to the repayment nature of this filing. This Chapter is better for those individuals who are working full time and could otherwise make monthly payments if only the amount was lower. Unlike Chapter 7, student loans in Chapter 13 are built into a debt repayment plan, and your outstanding debt is paid back in installments over the course of 3-5 years.
A Lasting Impact
As a rule, Chapter 7 will stay on your credit score for up to 10 years and Chapter 13 will stay up to 7 years, negatively impacting many areas of your life aside from your credit score. This includes difficulties securing financing in the future, potentially difficulty renting a property, and trouble with securing a line of credit should it be needed.
If Your Filling Gets Denied
What happens to student loans in Chapter 7 Bankruptcy is largely up to the courts. This is the unfortunate truth whether you have private or federal student loans. As such, if the court rules against your case, you must continue on with loan payments in whatever way possible.
While speaking with an attorney can help you identify the resources most useful to you, speaking with lenders and trying to consolidate your loans can often provide impactful relief though lowering interest rates and making payments easier to track.
Speaking With an Experienced Ohio Attorney
When considering Chapter 13 or Chapter 7 bankruptcy for student loans, it’s important to have an attorney by your side to help guide you through the process. Not only will this help you avoid mistakes that can hold back your case, it allows you to make the most of what exemptions the bankruptcy code has to offer.
As a bankruptcy attorney, I have worked with many individuals suffering from unmanageable debt. This has led to practice, training, and personal experience in many of the challenges and solutions faced for people who need help regaining financial control.
Need a debt consultation, we are here to help. Reach out by giving us a call at (216) 241 2510 to speak with an attorney about your case. It might help you more than you think.