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What About Student Loans?
What about student loans?
Can filing bankruptcy get rid of student loans?
The answer is simple: No, with one limited exception. You used to be able to file bankruptcy and eliminate certain student loans, but not any more. Not since 1998 when the law was changed. The idea is this: The government makes it easy to get student loans. Normally when you get a loan or credit from a bank or credit union there are certain hoops you have to jump through to make sure it looks like you can pay back your loans and to protect these lenders in case you don't. With student loans it's different. The government designed student loan laws to make it easy for almost anyone to get student loans. Why? To encourage people just like you to stay in school and get educated. The price you pay is that getting rid of student loans is tough if not impossible. The government loosened things at one end and correspondingly tightened them at the other.
What Is That Limited Exception?
Section 523(a) (8) of Title 11 of the United States Code provides that student loans are not dischargeable except where the student loans “impose and undue hardship” on you. Sounds good, right? We mean it’s always a hardship to pay back something when you don’t have the money. Don't be fooled. That's not what “hardship” means, at least not according to the courts. To qualify for a hardship discharge of your student loans, you have to prove that you will never be able to pay back the loans. Most courts have held that this means that you are stuck with your student loans unless you can prove that you are permanently and totally disabled from ever working for the rest of your life. Sounds harsh, doesn’t it? That’s the way it is.
So, Can Bankruptcy Do Anything For Me?
Absolutely. Let's face it, the people collecting overdue student loans can be ruthless. You know this if you are behind in paying back student loans. Bill collectors can make life very uncomfortable for you and your loved ones. It’s hard to focus on a new career when the nasty calls and threats keep coming. Many times, they can even garnish your wages in addition to the frustration you feel from fielding all the nasty calls.
Filing bankruptcy can’t get rid of student loans. That’s the bad news. It can’t even stop the interest from accruing, but it can put the student loan people under control for up to 5 years. Five years can give you breathing room and a chance to obtain a better job or better pay so that you are in a better position financially to pay your student loans and a better frame of mind to deal with them. During that time, no one can contact you regarding these past due student loans. That’s a relief!
What about getting new student loans?
If you are in “default” on your student loans, you more than likely will not get another student loan. If you are in default and tried to get additional student loans, you probably already know this. That is the key whether or not you are in default.
If you are not in default and can qualify for more student loans, you can still get more student loans even if you have filed bankruptcy. Section 525(C) of Title 11 of the United States Code makes it illegal for you to be denied a student loan just because you have filed bankruptcy. This is powerful.
So, What Should I Do?
Your first order of priority is to discuss your situation with an experienced professional that deals with this type of situation on a daily basis. You need to talk with a professional that can protect you and has the answers that you need to move on past this negative time in your life.
The Law Offices of Kirkpatrick and Associates have handled thousands of similar situations for people just like you. We know exactly what to do and how to do it. We can use federal laws to get you fast protection.
There is only one big problem! We can't help you if we don't know you. You need to call us for a FREE confidential appointment. Things will not get better by themselves. Come in and talk to us.
Call our offices now and get the paperwork started. If you decide to let us help you, it's only $100 to open a file and get started.
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Student Loans: A Tough Nut to Crack
Student loans are not dischargeable in bankruptcy. However, there are several options to help borrowers with defaulted student loans. The following is an introduction to this topic, and only meant to point you in the right direction.
I. Loan Cancellation:
These types of federal remedies are available to you even if your student loan is not in default. Keep in mind, however, that not all types of loans are eligible for cancellation. To find out what type of loan you have, contact the National Student Loan Data System at 1-800-4-FED-AID, or online at www.nslds.ed.gov.
The following are the main federal programs for student loan cancellation: Forms can be downloaded from http://www.ed.gov/offices/OSFAP/DCS/forms/index.html.
Closed School: Applies to Direct Loans, Perkins Loans, and FFELs. You must have been enrolled in school at the time of closure. If you withdrew, the withdrawal had to occur within 90 days of the closure. (http://www.ed.gov/offices/OSFAP/Students/closedschool/search.html).
- False Certification: Applies to FFELs and Direct Loans, but not Perkins Loans. To qualify, you must show that you were not able to meet eligible state requirements for the job you were training for, or that the school altered or forged loan or check documents. This type of discharge applies only to loans received on or after January 1, 1986.
- Total and Permanent Disability: This type of discharge applies to FFELs, Direct Loan, and Perkins Loan. You must be found totally and completely disabled to be eligible for this type of discharge, and must provide documentation from a physician that you are unable to work because of an illness or injury that is expected to continue indefinitely or result in death. This type of discharge is not available to you if the condition existed at the time the loan was made. However, under new rules, pre-existing conditions may qualify if you suffered substantial deterioration after the loan was granted..
- Unpaid Refund Discharge: As part of the 1998 Higher Education Act, if you borrowed after January 1, 1986, you can discharge the amount of the loan to the extent of the amount of refund owed to you, which the school failed to reimburse. Included in this discharge are reimbursements of tax refunds seized by the IRS in repayment of the student loan debt to the extent of a refund the school owed you, but never paid.
II. Repayment Options:
Even if you do not qualify for a loan cancellation, there are still some strategies to explore in dealing with defaulted student loans.
Loan Consolidation: This program allows those who do not qualify for a loan cancellation to consolidate their defaulted loans into a Federal Direct Consolidation Loan with an Income Contingent Repayment Plan (
- Deferments and Forbearances: You may qualify for either a deferment or forbearance even if the loan is in default. The main types of deferments include student deferments, unemployment deferments, and economic hardship deferments. However, keep in mind that deferments may not exceed a three-year time frame. Forbearances are available even when the loan is in default, but the interest continues to accrue during the forbearance period.
III. Offset of Federal Benefits:
Finally, borrowers whose student loans are in default often inquire as to whether their Social Security benefits can be taken by the government to repay defaulted student loans. Under the 1996 law, the federal government can take benefits from Social Security retirement and disability benefits, certain railroad retirement benefits, and Black Lung Part B benefits. However, keep in mind that there are limits on the funds that the government can take, and that the borrower can fight back. You must receive notice of a hearing before any of your benefits are taken.
If you owe on a defaulted student loan, your hearing will be with the Department of Education. At the hearing, you can either challenge the offset, or set up a repayment plan prior to having your benefits seized. To find out about your rights and options, contact the ombudsman's web site online at www.fsahelp.ed.gov.