This blog post will cover how a Chapter 13 Bankruptcy payment plan can affect your student loans. It will describe how the process affects your payments, collections, and whether you may pay less than the full amount when the Chapter 13 bankruptcy is over.

Student Loans are Non-Dischargeable Debt

Students coming out of college or graduate programs bring with them thousands of dollars of student loan debt. The Class of 2017 owes an average of $28,650, according to the Institute for College Access and Success. Nationwide, that adds up to a total of $1.56 trillion in student loans spread out over 44.7 million borrowers.

Employment trouble, health problems, or other financial concerns can make it hard, or even impossible to keep up with your student loan payments. With such a large debt looming over your head, bankruptcy may seem like a logical choice. But if you choose to file, you will likely come out of bankruptcy still owing your unpaid student loans. That is because student loans have been labelled “non-dischargeable debt”. That means even when all your medical debt or credit cards are wiped clean, your will still have to pay back your student loans. This is true no matter which consumer bankruptcy choice you make: Chapter 7 or Chapter 13.

A Word About Undue Hardship

There is one small exception to the rule that student loans are non-dischargeable debt. Former students who qualify for an “undue hardship” exemption can sometimes get some or all of their student loan debt discharged as part of a bankruptcy. To qualify for an undue hardship exemption you will need to demonstrate that:

• You couldn’t even maintain a minimum standard of living with your current income and expenses
• Whatever is causing your hardship will probably continue for a significant period of time (such as a permanent disability)
• You have made a good faith effort to repay your student loan debt as your income allows

However, this is very rare. Most borrowers will not qualify under this three-part test. While it may be an option in certain unusual circumstances, you should not count on an undue hardship exemption to rescue you from your student loan debt. Instead, you should talk to Firebaugh & Andrews for your free evaluation and help you decide if Chapter 13 bankruptcy is best for you.

Chapter 13 Bankruptcy Puts a Hold on Student Loan Collections

Neither Chapter 7 nor Chapter 13 bankruptcy options discharge student loan debt. But a Chapter 13 bankruptcy can affect your payments, and how you deal with collections efforts. A Chapter 13 bankruptcy puts an automatic stay on all debt collections, including student loans. That means once your Chapter 13 bankruptcy and payment plan have been filed, you won’t have to deal with collections companies trying to get you to pay back what you owe. That stay can last for 3 to 5 years as you work through your Chapter 13 payment plan.

In the meantime, your Chapter 13 bankruptcy can also reduce your monthly payments and extend the time you have to pay back your student loan debt. When it comes to payments, bankruptcy treats student loans just like any other “non-priority unsecured debts” (including medical bills, credit card debts, and loans from family members). You and your bankruptcy attorney can propose a payment plan that divides up all your disposable income (after allowable expenses like rent and food) between your creditors on a “pro-rata” basis. That means whichever creditors have a higher balance get a higher percentage of your money, but no one creditor can claim to be entitled to everything you have to pay. While you will still be paying your student loans during your Chapter 13 bankruptcy payment plan, it may not have to be at the same, unaffordable amount every month.

What Happens to Your Student Loans When the Bankruptcy is Over

When your Chapter 13 bankruptcy is over, the non-dischargeable nature of student loan debt kicks back in. While the remaining balance on your credit cards and other unsecured debts will be forgiven, you will still owe the rest of your student loans. The loans will also have continued to accumulate interest during the bankruptcy process, which may affect your monthly payments or total loan repayment going forward.

The post Can a Chapter 13 Bankruptcy Affect Your Student Loans? first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Can a Chapter 13 Bankruptcy Affect Your Student Loans? appeared first on Michigan Bankruptcy Facts 734-722-2999.

The Obama administration doesn’t want to see a flood of bankruptcy filings if the law is changed. The goal is to prod private lenders into giving borrowers the option to make more manageable payments.

Income-driven repayment plans — which base monthly payments on a percentage of income and can stretch loan terms out as long as 25 years — are the government’s great hope for plugging leaks in its own $1.2 trillion student loan portfolio.

More than 41 million Americans now owe the government student loan debt — nearly $30,000 each on average. The Consumer Financial Protection Bureau estimates that more than one in four of those borrowers are either behind on their loan payments or in default.

Student loan service’s — companies that collect payments on behalf of the government — are now signing up more than 5,000 borrowers a day for income-driven repayment plans, and 16 percent of federal direct student loan borrowers have already been placed in one.

The post Student Loans and private lenders first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Student Loans and private lenders appeared first on Michigan Bankruptcy Facts 734-722-2999.

Congress has made it difficult to discharge mortgage and student loan debt in bankruptcy in part because of the widely shared belief that there are societal benefits to promoting home ownership and access to higher education. Home ownership helps Americans build wealth, and educated workers command higher salaries and are better able to compete in the global economy.

Tough restrictions on bankruptcy discharge are one of the factors that keeps investment capital flowing into home loans and student loans, which helps keep them available and affordable for many people.

When millions of Americans found themselves in foreclosure during the height of the mortgage crisis, lawmakers dismissed calls from consumer advocates that bankruptcy judges be allowed to “cram down” mortgage debt.

The lending industry successfully argued that changing the rules after the fact would spook investors in mortgage-backed securities, which is the source of funding for the vast majority of home loans.

Role of private lenders

While the government now funds about 90 percent of student loans directly, private lenders also make loans to borrowers with good credit, often at lower rates than government loans.

As a result, many graduates with strong prospects are refinancing pricey government loans with private lenders. Many of these loans are of such high quality that they can be bundled up and sold to investors, much like mortgages.

The post Why Student Loans Are So Difficult To Discharge In Bankruptcy first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Why Student Loans Are So Difficult To Discharge In Bankruptcy appeared first on Michigan Bankruptcy Facts 734-722-2999.

We cringe because it’s not true. You actually can get your student loan discharged in bankruptcy in some limited cases. In fact, according to a study published in 2011 by Jason Iuliano, at least 40 percent of borrowers who do include their student loans in their bankruptcy filing end up with some or all of their student debt discharged.

The problem is the old tale that has consumers thinking there’s no chance to have these loans discharged, so they don’t try. Iuliano’s report found that only about 0.1 percent of consumers with student loans attempt to include them in their bankruptcy proceedings.

To be clear, if you borrow money, you have a moral and legal obligation to pay that money back, even if that means making some financial sacrifices. It is strongly recommended that students do more cost-benefit analysis and long-range planning before taking on student debt of any amount.

But sometimes life throws students some pretty big curve balls that they just can’t plan for or recover from, and it’s in those cases that bankruptcy comes into play. If you’re in that position, here are the most important things you need to know about student loans and bankruptcy.

We strongly advises you call Firebaugh & Andrews to get a free consultation 734-722-2999

• Check if you pass the  test: Current bankruptcy law exempts education loans and obligations from eligibility for discharge unless doing so would cause the consumer undue hardship. The problem is that undue hardship is not defined within bankruptcy law, leaving the bankruptcy courts to decide what this means.

The post Uncovering the student loan myth. first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Uncovering the student loan myth. appeared first on Michigan Bankruptcy Facts 734-722-2999.