First Properly confirm the loan cant be discharged in bankruptcy
Don't lump all student loans together and assume they cant be discharged. You will miss how some of them are dischargeable and how to do it. If you go to a law office that is a bankruptcy mill where people are processed through like McDonalds and you never see the attorney you will often fail to get a proper analysis of how to manage or discharge your student loans. About 35% of student loans are in default. If you think you can't manage, bankrupt or discharge your student loans think again. The get out of debt guy reported 2012 data showing that of the bankruptcy cases that filed for a student loan discharge 47% were discharged in full, 21% resulted in a better payment, and 12% settled for less than was due. That is an 80% success ratio. Three prior studies on student loan discharges in bankruptcy show similar results with slightly lower results. Some cases won by default simply because the lender failed to file an answer. Until 1999 student loans could be discharged just like any other debt if they had been due for 7 years. After 1999 loans insured by the Department of Education or a state agency to Students attending "qualified schools" were made non-dischargable unless that loan was an undue hardship. Even then a special lawsuit called an adversary proceeding had to be filed in bankruptcy court to discharge the student loan. This is extra work for the attorney which clients often do not want to pay for (hence it is rarely offered). How do you know if your school was "qualified" Look at the list of accredited schools. If your school isn't on the list of accredited schools it isn't a qualified school and the loan is just as dischargeable as any credit card debt. Only loans through accredited schools are protected from discharge. From 1999 to 2005 private student loans were discharged like a credit card. Private loans were not protected from discharge. If you filed a bankruptcy prior to 2005 any private loan was probably discharged automatically. If a debt collector is attempting to collect it is probably a fair debt collection practices violation and a contempt of the bankruptcy court. Bankruptcy cases filed after 2005 made loans from private banks non dischargeable unless the school was qualified and the student could prove an undue hardship. VA school loans can be discharged in bankruptcy after 5 years 38 USC 7634. Military service loans generally also have a 5 year waiting period 37 USC 303a(e)(4) but the Troops to Teachers program totally bars any discharge 20 USC 6674(f)(3) even if it is an undue hardship. Only Department of Education, State agencies and private loans require an undue hardship to discharge the loan. The Heal loan standard is even harder than the undue hardship and requires that requiring payment would be "unconscionable" 42 U.S.C. Section 292f(g. A debt for rent or any other service from a school is not a loan and is dischargeable even a debt for tuition. Only educational loans are not dischargeable unless undue hardship is proven.
Second, Government Loans have programs that allow you to manage or discharge their loans.
Fortunately the government has many programs that allow you to discharge or get a government loan out of default. Always check to confirm if the debt is government or private by signing into the National Student Loan Data System and creating an account and looking up whether the loan is a government loan. Once you are in the system this is the link to the page that lets you look it up. National Student Loan Data System Government loan page. Some government loans made in the 1970s may not show in their results. Government Loans can be brought up to date by the rehabilitation program. This requires applying for the rehabilitation program which must offer you affordable payments as low as 5 dollars. By making 9 of 10 on time payments your credit history will have a new notation that you have always been paying "on time". This program will allow you to purchase a home if a student loan default has been hampering your credit history. You can normally only rehabilitate a loan one time. IBR or income based repayment plans allow you to combine government loans into what should be an affordable repayment which is never more than 10% of income based on a sliding scale of 0% at the poverty level to 10% at the highest income. At the end of 20 years the balance is forgiven (discharged) and the loan is kept in a good payment status until it is discharged. The old program was/is 12% max for 25 years. Payments are as low as 0 dollars for IBR and since the program rewards you for every year the loan is repaid you never want to use an unemployment deferment again for IBR and public service loan programs. For those years you have zero income just send in your zero payment while on unemployment or social security. Parent Plus loans may need to look at the ICR program which are similar. If you also work for the government or a non profit entity like a Hospital, Charity or School the public service program allows you to pay off the IBR loan within 10 years with 10% of the loan repaid for every year. Church employees that do non religious work qualify. Even doctors qualify. Just fill out the form. Not only does rehabilitation and IBR exist for government loans but several other programs to discharge government loans exist. Some defer payment. In a deferment the government pays the interest in a forbearance interest continues to accrue. If a school closes a program and you can't complete the program you may be able to discharge the debt. Other discharges exist for parents when a student dies A student may also discharge the debt for disability.
Third, Private Loans the Statute of Limitations and other defenses
Private student loans have no or few programs that allow the debt to be discharged upon disability or other conditions. As a result private loans can only be discharged in bankruptcy or paid. It is therefore much easier to discharge private student loans in bankruptcy as creating an undue hardship. In order to collect private loans have to depend on your voluntarily paying or sue. They can't administratively attach tax refunds or wages without suing like the Department of Education. Also all of the normal defenses you can make against a credit card such as the Statute of Limitations apply to private student loans. Defenses like the SOL do not apply to government loans. The fair debt collection practices act only applies to loans in default which happens to government student loans when they are about 270 days overdue and to private student loans when they are 1 day overdue. Debt collectors who are attempting to collect a private loan will often claim that the loan is a government loan in an effort to claim that the statute of limitations does not apply to them. This is another reason for checking to see if the loan is government or private. Other defenses may include real party in interest. All of the defenses that can be used against any common debt apply to private student loans. Some states have 3 or 5 year Statutes of Limitations. Some states will toll the statute (restart the clock) if you make a payment. Kentucky has a 15 year SOL and any payment restarts the 15 year period.
Fourth Discharging student loans in Bankruptcy the Undue Hardship Standard
A Debtor is required to prove that he "would be unable to maintain a minimal standard of living if forced to repay student loans" to prove an undue hardship and discharge a student loan in bankruptcy. This requires you to document past, present and future inability to pay the minimum student loan payments, income and required basic expenses such as food, health-care, housing, and transportation. If there is proof of undue hardship and you have a condition that "make it unlikely your situation will improve" gather the evidence to prove it. This may be any evidence and condition showing your income or expenses will prevent you from paying a student loan for a long time such as disability. You will also have to prove that you have made a "a good faith effort to repay your loans" which often includes placing government loans into an IBR income based repayment plan. Private loans are much easier to discharge in bankruptcy, because there are few or no programs for private loans. The only available options for private loans are pay in full or default. Proof that you made these good faith efforts and requests include proof of the telephone calls, letters, applications, deferments and forbearance. It's your burden to prove that you made every effort to repay. You have to prove that an undue hardship discharge is the only option left to get the undue hardship discharge. This is very difficult to do but 40-80% of the people filing for it from 2005 to 2012 were able to prove it. To find out more visit our website. If you are in Kentucky or Southern Indiana come see us for your bankruptcy.
Additional resources provided by the author
See our manual on Bankruptcy which has a section on student loan debt.
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