Bankruptcy and Student Loans
Manalapan Bankruptcy Attorneys Explain Student Loan Discharge
Student loan debt can be overwhelming, especially for young graduates struggling to find career opportunities. Payments on both federal and private loans represent a heavy financial burden that many simple cannot handle. However, student loan debt is not like other debt. While bankruptcy can help you manage your student loans, you must meet certain requirements in order to be eligible for a discharge. Otherwise, bankruptcy and bankruptcy alternatives can help you better deal with all of your debts, including your student loans.
At Garland & Mason, L.L.C., our bankruptcy attorneys understand how stressful creditor calls and letters can be, especially for those with unmanageable student debt. New Jersey state loan programs, in particular, can be taxing for graduates as well as their cosigners. We offer free initial consultations so that we can review your situation and explain your best financial and legal options. If you qualify for a federal loan forgiveness program, we will tell you how to apply. If bankruptcy is the best plan for your situation, we can help you file and will stand by you through the entire process.
Can I File Bankruptcy for Student Loans?
Student loans are technically a type of unsecured debt, since your creditors cannot repossess your education or collateral for nonpayment. However, while unsecured debt is usually dischargeable through bankruptcy, special rules apply to student loans. As a result, you generally cannot eliminate your student debt by filing for bankruptcy, except in rare and special circumstances.
If paying off your student debt is an “undue hardship,” then you can discharge these debts in bankruptcy. However, to prove undue hardship, you must pass the Brunner test, which can be extremely difficult. The Brunner test (named for the case Brunner v. New York State Higher Education Services Corp) requires that you have evidence showing:
- Student loan payments are keeping you from maintaining a minimal standard of living.
- Conditions exist that will continue to make it difficult for you to repay you student debt while maintaining a minimal standard of living.
- You made an effort in good faith to repay your student loans.
Therefore, showing that you are currently struggling to make your loan payments is not enough to get a bankruptcy discharge. There must be reasonable evidence to show that you will never be in a position to fully repay what you owe. Most often, student loan discharges are only granted to people who sustain serious, disabling injuries or illnesses, which prevent them from working.
If I Do Not Qualify for an Undue Hardship, Should I Consider Bankruptcy?
If you do not qualify for an undue hardship discharge, filing Chapter 13 bankruptcy can still help you manage your student debt. The automatic stay applies to your student loan lenders, just like all of your creditors. This means that all collections actions and wage garnishments from unpaid student loan debts will cease when you begin the bankruptcy proceedings. Additionally, a Chapter 13 bankruptcy repayment plan can help you get current with your student loan payments, as well as eliminate other debt. Discharging other debt will free up your budget, allowing you to continue to pay your student loans in the future.
What Alternatives to Bankruptcy Can Help Reduce Student Loan Debt?
In some cases, such as if your only debts are student loans, bankruptcy may not be the best option for you. However, some alternatives to bankruptcy may still help you manage your student loan debts. In most circumstances, you will have more options to reduce your payments or overall debts for federal student loans. For federal student loans, consider:
- Income Based Repayment Plan (IBR). Many different payment plan options are available for most federal student loans. If you qualify for an IBR, your monthly payments will be roughly 10 percent of your total income. However, if you are unemployed or have a very low income, your total monthly payment may be $0. If you change jobs or start earning more, your payment will also increase.
- Forbearance or Deferment. You may be able to defer payment on your federal loans for a given amount of time. This can help if you recently lost your job or are dealing with an unplanned financial hardship, like medical bills.
- Debt Forgiveness. In some circumstances, you may qualify for debt forgiveness through a federal program. Some loans, like federal Stafford and Perkins loans, may be forgiven after a certain period of time for those in certain public interest professions, such as teachers.
If you have private student loans, your options may be more limited. However, in many cases you may be able to consolidate your private loans at a lower interest rate. Many lenders may also be willing to change your repayment terms. Qualified bankruptcy attorneys can help you negotiate with banks and private lenders. Additionally, each lender is different, and some may offer refinancing or student loan management programs.
More Questions on Bankruptcy and Student Loans? Contact Us Today
If you are struggling with student loans, our New Jersey bankruptcy attorneys can assist you in finding a debt relief plan that works for you. We can explain the benefits of bankruptcy as well as bankruptcy alternatives. In addition, we can advise you of any debt forgiveness programs you may not have considered. We serve clients throughout the state, including Manalapan Township as well as Monmouth, Middlesex, Ocean and Mercer Counties. Contact our law firm online or call our office today to schedule a free consultation.