Tag: Income Based Repayment Programs

Debt Relief, student loan debt, Student Loans

An Alarming Number of Student Borrowers Have Made No Progress on their Loan Balances

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A disturbing number of student loan borrowers who began their repayment plans between 2010 and 2012 have made little to no progress towards reducing the principal balance owed on their student loans. According to a recent report from Moody’s Investor Services, 49 percent of student loan borrowers whose loan repayment plans began during that time have made no progress. Even worse, many of them have seen their balances grow.

This problem could be due to several factors, including poor job prospects and low salaries in their first jobs after graduation. Depending on the degree pursued by each borrower, it can be difficult, if not impossible, to find a viable job that will allow the borrower to make appropriate payments to pay down their student loan debt.

student loan debt

Tax Consequences That Come With Student Loan Forgiveness

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Receiving student loan forgiveness can be difficult to accomplish, which is why so many loan forgiveness applicants are rejected. It is also why many student loan borrowers choose to take the route of income-driven repayment plans to pay off their debt over the course of 10 to 25 years before having the remainder forgiven. However, what many of these borrowers do not realize are the tax consequences that come along with these income-based payment programs.

Under Section 61(a)(12) of the Internal Revenue Code, gross income includes revenue from the discharge of debt amounting to $600 or more in any calendar year, which means any debt that is forgiven at the end of the repayment period is considered taxable income. Depending on how high the outstanding balance is on the borrower’s debt, this taxable amount could be significant.

Bankruptcy Law, Credit, Debt Relief, Student Loans, Timothy Kingcade Posts

Bankruptcy Court Determines “Income Based Repayment” Unrealistic

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Another borrower has triumphed over his student loan debt, after he filed his own adversary proceeding with the U.S. Bankruptcy Court of the Western District of Missouri.  The judge in this case decided the borrower’s federal student loans should be discharged tax free in bankruptcy, allowing him to save for the future and have a better life.

In his decision, the judge looked at the “totality of the circumstances” the debtor was facing and criticized the income based repayment programs offered by the Department of Education.

The struggling borrower in this case was a truck driver who had maximized his earning potential. The public records summarized his situation by saying, “The Debtor (who represented himself) is forty years old and is unmarried. He is currently employed as a delivery driver, but at times in the past, he has worked as an over-the-road truck driver. He currently earns gross regular income of $2,420 per month, plus overtime in the approximate amount of $643 per month, for a total gross monthly income of approximately $3,063 per month. After payroll deductions for taxes, a modest retirement contribution, insurance, and child support, his net take-home pay is approximately $1,183. The Debtor testified that, due to Department of Transportation limitations on hours of service, he is unable to earn any more than what he is currently earning with the overtime, even if he took a second driving job. He also testified without contradiction that he has no job skills other than as a driver.”

Chief Bankruptcy Judge Arthur Federman noted in his opinion that Income Based Repayment Programs (IBRP) are “not the magic answer to federal student loan debt.”  He further went on to say, a court, “must be mindful of both the likelihood of a debtor making significant payments under the IBRP, and also of the additional hardships which may be imposed by these programs. As stated, interest and other charges would continue to accrue while the Debtor participated in IBRP, meaning that the total debt would be increasing. The overhang of such debt could well impact not only the Debtor’s access to credit over the 25-year IBRP period, but could also affect future employment opportunities and access to housing.”

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For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.