Students Loan on Debate in Legislation for Bankruptcy Qualification

Posted on March 11, 2013 by Staff Writer

Bankruptcy was put into place to assist people with getting their finances back on track and freshly doing over debts that were making them drown in financial problems. However, student loans have not been part of the bankruptcy plan – for federal loans, since 1978, and for private loans, 2005. Legislators now want to reverse a law put into place in 2005 to allow students to put private student loans on bankruptcy to eliminate these types of student loans.

The Fairness for Struggling Students Act of 2013 cosponsored by Senators Dick Durbin (D-IL), Sheldon Whitehouse (D- RI) and Jack Reed (D-IL), looks to allow students to eliminate their private student loan debt. Student loans happen to be the largest consumer debt – over a $1 trillion nationally, which is not allowed to go under bankruptcy. The interesting thing is that federal loans have better rates in comparison to private loans where it typically has a double digit interest rates and no income based repayment options. Allowing private loans to be dismissed in bankruptcy would greatly benefit those who are financially struggling.

There are many organizations that are in support of this bill such as American Association of University Women, Consumer Financial Protection Bureau, the U.S. Department of Education, FinAid.org publisher Mark Kantrowitz, The Institute For College Access and Success, and Sallie Mae all are seeking some sort of reform and change to assist those who struggle with the repayments in financial hardships.

Bankruptcy lawyers are here to help understand this new law and other aspects of bankruptcy. If you have questions and/or need assistance, please contact an attorney in the Nevada area.

Can I include my student loans in my bankruptcy?

Posted on January 27, 2013 by Staff Writer

Generally speaking student loans are not dischargeable in bankruptcy. The US Bankruptcy Code at 11 USC 523(a)(8) provides an exception to bankruptcy discharge for education loans. However, student loans may be discharged if you can show that payment of the debt “will impose an undue hardship on you and your dependents”.Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. But a common test is the “Brunner test” which requires a showing the following:

1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans;

2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

3) the debtor has made good faith efforts to repay the loans.

The second element of the Brunner test is the most difficult hurdle for most people. The difficulty lies is proving to the court that you won’t be able to pay off the loan in the future. The burden is on you to prove that you’ll never be in a better financial situation—one where you could pay on the student loan. Unless a person has experienced some type of permanent disability it’s tough to prove that there’s no way you could find yourself in a situation to pay off your student loans. Because it’s theoretically possible that next month you’ll get a job at FaceBook making a million dollars a year.

Come speak with one of our attorneys during a free consultation to see if your student loans may be dischargeable in bankruptcy.

Arizona College Students Have the Lowest Levels of Student Debt in the Country

Posted on December 20, 2012 by Staff Writer

A study by the Institute for College Access and Success found out that almost half of all Arizona college students graduated in 2011 were in debt, the average debt being about $20,000. Arizona is 45^th in the US when it comes to student indebtedness. On a national level, two-thirds of graduates getting a bachelor’s degree in 2011 had $24,854 in debt. According to a report “Student Debt and the Class of 2011,” states in the South and West generally had lower debt levels, while in the Northeast and Midwest the levels were higher.

There are many factors that explain the results, for example, tuition costs, scholarships, low income and family resources. Arizona’s rank is probably due to the availability of scholarships in the state. “Arizona students in public college do receive considerable grants and scholarship aid from universities,” said report author Mathew Reed. An Arizona Board of Regents spokeswoman agreed that scholarships are a contributing factor to the low debt levels. In the year 2010 and 2011, the public universities granted almost $400 million to thousands of students.

Another factor is Arizona’s reasonable education costs. Although tuition and fees at the state’s public universities have increased in recent years, they still remain competitive among similar institutions and this almost certainly contributes to the state’s lower-than-average student debt.

Although students in Arizona do not have high debts on a national level, $20,000 can still be too much in a tight financial situation. If you have a hard time paying your debts, it is worthwhile to consult an experienced bankruptcy lawyer. Work out your debts in a reasonable way. Contact a knowledgeable bankruptcy attorney in Arizona at your earliest convenience.

Student Loan Co-Signers Face Bankruptcy When Students Default

Posted on November 12, 2012 by Staff Writer

While federal student loans don’t normally require a co-signer, the $150 million private student loan industry does require student loan borrowers to have a co-signer more than 80% of the time. At the rate at which college tuition is continuing to rise, private student loans are almost a necessity in financing a college education. Many parents, grandparents, and other relatives agree to co-sign student loans for the college-bound in an attempt to help them achieve success in life. However, these well-meaning relatives often do not think through the implications of co-signing a student loan, or the repercussions if the primary borrower defaults on the loan.

A recent article in Wall Street Journal’s Bankruptcy Beat shows that as student loan default rates continue to rise, parents and grandparents who have co-signed students loans are increasingly turning to bankruptcy when debt collectors begin to pursue them for the defaulted loans. While filing for bankruptcy protection may temporarily stave off harassing creditor phone calls and letters, however, student loans are not easily discharged.

Like the primary borrowers, co-signers must be able to prove that repaying the student loans would cause them “undue hardship,” which bankruptcy courts have traditionally construed to be an almost impossibly high standard in many cases. If, for example, the co-signer is supporting the primary borrower in other ways, such as providing him or her with a cell phone or car, but claims an inability to pay the student loan payment, the bankruptcy court is not likely to find that the co-signer is unable to repay the loans. As a result, co-signers are often simply stuck with not only the financial burden of student loan payments in later life, but also with the emotional toll that a financial dispute between parent and child can take on a family. However, in some cases, bankruptcy may be a realistic option if a co-signer is truly financially unable to repay the student loans.

If you have co-signed a student loan for a child or loved one, and that loan is now in default, bankruptcy may be an option for you. Contact your skilled Arizona bankruptcy lawyer today, and discover whether bankruptcy proceedings may be appropriate in your case.

The relationship between student loan debt and credit card debt

Posted on August 8, 2012 by Staff Writer

The most common debt plaguing bankruptcy filers is consumer debt such as credit cards. As obtaining a college degree becomes more common, so does the accumulation of student loan debt. More and more people are finding themselves burdened by this type of debt, but the treatment of student loans in bankruptcy is different than credit card debt. Student loan debt typically cannot be discharged in bankruptcy.

Student loan debt is an unavoidable burden for many who attend college. More than 80% of college students will take out a loan to help cover their expenses. College tuition costs an average of $15,000 a year, which does not even include books and living expenses. The average college graduate will exit college with $30,000 in student loan debt.

Unfortunately, a college diploma does not necessarily guarantee a job to help repay the loans. The troubled economy has half of college graduates struggling to find employment. Even those with jobs may not earn enough to repay their loans. Many graduates default on their student loans because they are unable to afford the payments.

If the average person has $15,000 in credit card debt, then the average college graduate could have up to $45,000 in combined credit card and student loan debt. Due to the nature of student loans, bankruptcy will not provide any relief for a majority of their unsecured debt. Student loans must be repaid. Failure to do so may result in garnishment, levied bank accounts, and the withholding of government benefits like social security.

This is a grim picture for college grads, but bankruptcy may still provide desirable relief from an overwhelming financial burden. Although it is likely that the student loans are not dischargeable and must be repaid, the discharge of other consumer debt may provide some breathing room. By discharging certain debts in bankruptcy, income may be reallocated to repay student loan debt.

A person burdened by debt should consult a reputable and competent attorney to determine what options are available for dealing with her debt. Contact our Phoenix, Arizona bankruptcy lawyers today!

Can Student Loans be Discharged in Bankruptcy Court

Posted on July 26, 2012 by Staff Writer

Student loans are difficult, but not impossible, to discharge in bankruptcy. To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.”

Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. A common test is the Brunner test, which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Not all courts use this test. Some courts will be more flexible, some less.

If you can successfully prove undue hardship, your student loan will be completely forgiven. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Whether a student loan is discharged based on hardship is not automatically determined in the bankruptcy process. You must file a petition (called an adversary proceeding) to get a determination.

If you already filed for bankruptcy, but did not request a determination of undue hardship, you may reopen your bankruptcy case at any time in order to file this proceeding. You should be able to do this without payment of an additional filing fee. Chapter 10 of NCLC’s Student Loan Law manual includes extensive information about discharging student loans in bankruptcy.

Even if you cannot prove undue hardship, you still might want to consider repaying your student loans through a Chapter 13 bankruptcy plan.

Schedule a free consultation with an experienced Arizona bankruptcy attorney to see when you should file. Keep the assets you need to start over, don’t use them to pay creditors when you don’t have to. Contact a Phoenix Bankruptcy Attorney Today!