Chapter 13 Bankruptcy | Refinancing Student Loans To Avoid Bankruptcy (Pt. 2)
You Have to Qualify
Chapter 13 Bankruptcy | To be eligible for student loan debts to be discharged, you must first qualify. You will need to follow a set procedure, outlined below, to discharge your debt.
Procedure to Discharge your Student Loans in Bankruptcy:
You must first file a formal complaint called a Complaint to Determine Dischargeability with the bankruptcy court. You will then need to prove to the court that payment of your loans will cause an undue hardship.
Most likely a test will be used to determine undue hardship. This test varies between courts, but usually the Brunner test is use.
Here are three circumstances you must meet to qualify for the Brunner test:
Poverty. Based upon your current income and expenses, you will be unable to maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
Persistence. Your current financial situation is likely to continue for a significant part of the repayment period.
Good faith. You have made a good faith effort to repay your student loans.
The Totality of the Circumstances test examines all relevant factors in your case.
There is also special test for Health Education Assistance Loans (HEAL). You will have to show that the loan became due more than seven years ago and repayment would cause an “unconscionable” burden on your life.
Most courts look at the undue hardship tests as all or nothing – either you qualify to get the whole loan discharged, or you do not. But some courts have discharged a portion of a debtor’s student loan.
Three Common Characteristics
According to a Harvard study, debtors who were successful in discharging some or all of their student loans through bankruptcy had at least one of these common characteristics: they were unemployed, had a medical hardship, or had a lower income the year before filing for bankruptcy.
You Must File for Chapter 7 Bankruptcy
If you are filing for bankruptcy to try and discharge student loan debt you must file for Chapter 7 bankruptcy. Chapter 7 bankruptcy allows immediate forgiveness of all unsecured debts. This is different from Chapter 13 bankruptcy, which establishes a debt repayment plan that allows you to discharge your debts over a period of three years.
Managing Other Debt
One other thing that might help student loan debt is to find a way to manage your other debt through debt consolidation. Streamlining debts can help to free yourself from financial burden while lowering costs. But you’ll want to understand just what debt consolidation is so that you can decide if it’s for you. If you’re able to pay off your debts within 6 months to a year, you might just consider being really strict. If you look at your debt and see years and years of potentially impossible saving, then you might consider debt consolidation.
Debt Consolidation Companies
A lot of times willpower is not enough to help debtors out of the hole. It’s important that you analyze your spending habits. Going out to dinner every night for a delicious but extravagant meal will not help you pay down your $33,000 Visa debt. You’re going to need to make some changes. But if you have made those changes and you still are not reaping the rewards of your new debt habits, then you might want to seek the help of an expert.
That’s exactly where a debt consolidation company comes in. These companies are kind of like your best friend that stops you from eating that fourth chocolate chip cookie. Debt consolidation companies are there to “save you from yourself” and help you make the right financial moves before your “inner cookie monster” takes over.
Here’s what a debt consolidation (a.k.a. debt management or credit counseling) does:
- Closes credit accounts so you cannot use them.
- Sets up an automated monthly payment based on your budget that gets distributed it to your creditors.
- In some cases, they can negotiate lower APRs or reduced late fees with your creditors
Considering Debt Consolidation
Debt consolidation can be helpful to anyone: whether you’re considering bankruptcy, or if you are just trying to get a handle on your finances.
What Is Debt Consolidation?
Debt consolidation means that all of your smaller loans get paid off with one large loan. So you essentially get one lump sum to pay off your smaller loans so that you only have one monthly payment rather than several monthly payments. If their behind this is one payment is easier to manage than several. And the main goal is it lower the interest rate and monthly payments while paying off your debt in a quicker amount of time.
Debt Settlement
It’s important to note that debt consolidation is not the same as debt settlement. Debt consolidation allows you to pay your debts in full without causing negative consequences to your credit. Debt settlement is the process of paying off debt to a creditor once a mutually agreed to sum is reached. This sum is usually less than what is owed. Typically, only unsecured debt (for example, credit cards and medical bills), is eligible for debt settlement. Debt settlement is often considered a risky process.
Overview of What Can Bankruptcy Do to Help
If you do not meet the undue hardship criteria for student loan debt, bankruptcy can still help you in important ways. Mostly, you will be filing in order to control your other forms of debt. Filing for Chapter 13 bankruptcy can restructure your student loans along with other debt into a manageable three- to five-year payment plan.
Filing for Chapter 7 bankruptcy can eliminate your other debts such as credit card and medical bills, giving you some breathing room, so you can better manage your student loan debt.
Every situation is different. Our bankruptcy lawyers will work with you personally to craft a debt relief strategy that meets your unique goals and helps you get your student loan debt under control. – Miami Bankruptcy
Specializing in bankruptcy and foreclosure law for over 20 years. Call attorney David Pinkston for a free consultation today: (904) 389-5880. #FloridaBankruptcyAttorney #FloridaBankruptcy If you are thinking about #bankruptcy or #foreclosure in the Jacksonville, Florida area, you should call attorney David Pinkston. David is very experienced with all aspects of bankruptcy law yet very personable and easy to talk to. Call Us Today! (904) 389-5880