Tag: proving undue hardship

student loan debt, Student Loans

Dispelling Myths about Private Student Loans and Bankruptcy

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Federal student loans often are not enough to cover the costs of attending a university. Many times, student borrowers need to seek additional sources of funding, including private student loans, to pay for the costs not covered by their federal student loans. Borrowers often operate under the misconception that, like federal student loans, these private loans are also not dischargeable in bankruptcy. In fact, many misconceptions exist surrounding private student loans and how they are handled in a consumer bankruptcy case.

One of the biggest of these misconceptions is that private student loans can be discharged in a bankruptcy case. While student loans are harder to discharge in bankruptcy, it is not impossible. With federal student loans, the bankruptcy filer must start a separate adversary proceeding where he or she needs to prove that paying these debts would present an undue hardship. However, private student loans are not always subject to this extra step in a bankruptcy case.

Bankruptcy Law, student loan debt, Student Loans

Democrat Lawmakers Push for Student Loan Debt Bankruptcy Reform

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Discharging student loan debt through a consumer bankruptcy case has been next to impossible for borrowers facing a financial crisis. Bankruptcy reform advocates have been calling upon lawmakers to make this process easier for student loan borrowers with no success. Recently, several prominent Democrat lawmakers have called upon the president to help make these reforms through executive action. In addition, they have also sent separate requests to two federal agencies to do the same.

In order to receive a discharge for their federal student loan debt, borrowers facing a bankruptcy proceeding have been required to file a separate legal action within their already open bankruptcy case and to prove that they would suffer an “undue hardship” if forced to continue paying on their student loan debt.

student loan debt, Student Loans

Will Discharging Student Loan Debt Become Easier?

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Student loan debt has traditionally been extremely difficult to discharge in bankruptcy. For years, student loan borrowers and advocates have been pushing for legislation to make this process easier. The Biden administration has made statements indicating they will make this process easier in the future, although it is unclear when or if this will ever happen.

It is not impossible to discharge student loan debt in bankruptcy. The bankruptcy code does allow for it, but the test to demonstrate the need for discharging student loan debt has been difficult for borrowers to prove. Unlike other consumer debts, to receive a discharge from their student loan debt, the borrower must prove that repaying these loans would put an undue hardship on them. Unfortunately, the definition of what qualifies as an “undue hardship” is found within the U.S. bankruptcy code, which means defining this standard has been left to individual courts. Certain jurisdictions have made the standard next to impossible to meet, while others have been somewhat more lenient. Regardless, no consistent standard has been set.

student loan debt

The Student Borrower’s Bankruptcy Relief Act Would Make It Easier to Wipe Out Student Loan Debt in Bankruptcy

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Discharging student loan debt in a bankruptcy case has been an almost impossible feat for most filers. That is, unless they are able to meet the undue hardship requirements.  However, a new bill named the Student Borrower’s Relief Act of 2019 could potentially remove those roadblocks that have prevented borrowers from receiving relief in the past.

Bankruptcy offers the filer a fresh start where the individual can rid himself or herself of financial burdens that have been weighing him or her down for years. These debts normally include unsecured debt, including credit cards, personal loans or medical bills. However, if the bulk of the person’s debt is student loans, the filer would normally end up in the same situation even after the bankruptcy was over. While medical debt and credit card debt may have been discharged, the borrower would end up still carrying a large amount of debt. It is for this reason that many borrowers might avoid bankruptcy, seeing it as a no-win situation.

Bankruptcy Law, student loan debt, Student Loans

Bankruptcy: Finally An Option for Student Loan Debt?

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Student loan debt is at an all-time high with 44 million Americans carrying outstanding amounts of the debt. It is currently estimated that $1.5 trillion is owed in student loan debt. With that many people graduating with student loans, it should come as no surprise that many of these borrowers eventually default.

Approximately 11 percent of student loan borrowers have defaulted or were delinquent on their loans by the end of 2018. For the most part, consumer debt, including credit card and medical debt, can be discharged in a bankruptcy case. Only a very select list of debt is not allowed to be discharged at the end of a bankruptcy case, including child support, alimony, criminal fines and certain overdue tax debt.

Debt Relief, Student Loans, Timothy Kingcade Posts

How Student Loan Debt is Different From Other Debt

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Debt plagues so many Americans today, but the type of debt varies from person to person. When it comes to debt collections or even bankruptcy, how the debt is treated depends on the type of debt. Student loan debt is one category that is treated differently than other common debt categories involved in bankruptcy.

Student loan debt has doubled since the most recent recession, which presents a major problem for many borrowers who are struggling to repay their loans, so it is extremely important to understand how student loan debt is treated in bankruptcy and collection matters.

Debts normally fall into two different categories: secured and unsecured. Secured debt is “secured” by either another person or an asset purchased, meaning if the consumer defaults on the debt, the lender has recourse to seize the asset.

Unsecured debt is not connected to another person or asset and commonly includes credit cards, personal loans, and medical debt. Student loan debt is also another form of unsecured debt, although it is not treated the same way as other unsecured debt. One major difference is the fact that student loan debt does not go away so easily.

If the borrower fails to pay on a student loan, the lender will likely initiate a collection action, which will result in a judgment against the consumer and likely a garnishment of that person’s wages. The same situation occurs with any other unsecured debt, but the difference is student loan debt is not easily discharged through bankruptcy.

It is possible, but the legal standard that needs to be met for this to be done is quite strict. The borrower will need to prove to the court that a good faith effort has been made to repay the loan, as well as proving undue hardship that is likely to continue if the debt is not discharged. It is not an easy burden of proof, and if the court does not discharge the debt, it will remain with the individual once the bankruptcy is over.

Student loans include both federal and private loans. Those loans that are federal are backed by the federal government and are disbursed by the U.S. Department of Education. On the other hand, private loans are backed by private lending institutions. The difference is critical in that federal student loans are not restricted by a statute of limitation when it comes to collecting on the debt.

In addition, federal loans have certain protections that private loans do not and offer different types of repayment plans in the event the borrower’s life circumstances change. For the most part, federal loan repayment terms are around ten years, but they can be extended or graduated or even income-based in terms of repayment. Additionally, some federal loans offer forgiveness programs.

Private student loans are oftentimes a last resort when it comes to financing education. However, many students max out their federal lending and have no choice but to supplement with private options given the cost of education.

It is currently estimated that somewhere around 40 percent of all student loan borrowers will default at some point on their student loans. Many different mistakes can be made when it comes to student loan repayment. If you believe you qualify for student loan debt relief, speak with an experienced bankruptcy attorney about your options.

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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. There are ways to file for bankruptcy with student loan 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 McMaken 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 McMaken website at www.miamibankruptcy.com.