How to file for student loan bankruptcy


Here are the steps to take and what to expect

What is Student Loan Bankruptcy?

It is possible that you have heard that student loans can’t be discharged in bankruptcy. This statement is too simplified. Although student loans can be discharged in certain cases, the hurdles are higher and more difficult than for other types of debt.

If a bipartisan bill has been introduced, filing for bankruptcy to discharge student loan debts may be easier. Senators Dick Durbin (D.Ill.) & John Cornyn, (R.Texas), introduced the Fresh Start Through Bankruptcy Act 2021. This bill would allow borrowers who have federal student conventional rehab loan to file for bankruptcy to discharge their loans up until 10 years after the first payment is due.

It would allow private student loans to continue with the existing undue hardship disbursement option, as well as federal student loans due in less than 10 years..

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How student loan bankruptcy works

Falling behind on student loan payments can have a significant impact on your financial life. Your wages may have been garnished by a lender who has taken out a judgment against your. Your tax refund may have been kept by the federal government and applied to federal student loans.

You may not realize that student debt is only one of your financial problems. You are unlikely to be able to discharge student debt through bankruptcy if it is the only problem. It is difficult to file for student loan bankruptcy. However, it does not guarantee you will be debt-free. If your credit score is poor, bankruptcy may be an easier way to get financial stability than continuing to pay off your debts.

There is no “student loan bankruptcy” type of bankruptcy. To have student loans discharged by bankruptcy, you must file Chapter 7 or Chapter 13 along with an additional step called an “adversary proceeding” or AP. To have student loans considered for discharging, the AP must be filed.

Decide how you are filing

You must file Chapter 7 or Chapter 13 bankruptcy before you can petition a judge for student loan discharge. You will need to complete extensive paperwork and disclose your assets, income, and expenses. To confirm your debts, the bankruptcy court will assign an impartial trustee. Credit counseling is also required before any court proceedings can be initiated.

People can declare bankruptcy to help them catch up on their finances after falling behind. It stops collection activities and stops the downward spiral of debt. Debt collectors are required to stop harassing you after you file bankruptcy. They must also cease collecting until you have your case closed. Wage garnishment must also stop.8

Chapter 7 Bankruptcy

Your non-exempt assets will be sold by the trustee in a Chapter 7 bankruptcy. The exemptions vary from one state to the next, but typically include your primary residence, your sensible vehicle, and your personal possessions. The proceeds are used by the trustee to pay creditors as much as possible and the court then discharges the remainder.

You cannot file Chapter 7 if you have not had a Chapter 7 bankruptcy filed in the last eight years. Your current monthly income must be below the state median, or you must pass a means check. Some debts, like taxes, alimony and child support, cannot be forgiven. The entire process may take several months depending on how complex your case is. After your case is closed, you can file to get student loan discharge.

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Chapter 13 Bankruptcy

If they are unable to pass the Chapter 7 means tests or they don’t want their home to go into foreclosure, they may turn to Chapter 13 bankruptcy. This is possible if there is significant equity in the property. Chapter 13, also known as a restructuring, is what the U.S. bankruptcy code refers to as “adjustment in debts of an individual who has regular income.”

Chapter 13 is a plan to create a repayment plan using up to 100% of the debtor’s income to repay creditors in three to five year. The trustee oversees repayment and collects a monthly payment. He then redistributes the money to creditors according to the repayment plan.

Based on your situation, the bankruptcy court will decide your monthly debt payments. If you are having trouble paying student conventional rehab loan debts, Chapter 13 may be a good option. You can’t lower the monthly payment in any other way. Private student loans may be a better option than federal loans for repayment.

Bankruptcy of Student Loans

Before you file for bankruptcy, it is important to think about other factors.

Your loans could be more expensive. Chapter 13 bankruptcy can have serious drawbacks when it comes to student loan control. Each month, the bankruptcy court will determine how much you pay each creditor. If your other debts are higher priority than student loans, the bankruptcy court will decide how much you will pay each month.

If your only debt is a student loan at last, you shouldn’t file. This is something that the Department of Education doesn’t like. It could be an intentional strategy to avoid paying your student loans. You are unlikely to win your case if you don’t have any other debt. Students who are unable to repay their student loans can be discharged.

Your loan type could impact your success. A private student loan may be easier to discharge or settle in bankruptcy than a federal loan. Federal student loans have income-driven repayment plans (IDR), while private student loans don’t. Many courts will conclude that you can repay the debt if you are eligible.

The additional step: Filing an Adversary Proceeding

This is where things get complicated. To have student loan at last forgiven, it is not enough to file bankruptcy under Chapter 7 or Chapter 13. It is necessary to file an adversary proceeding.

An adversary proceeding, according to the U.S. bankruptcy law, is “a proceeding that determines the dischargeability of debt.”13 This means it’s a lawsuit within bankruptcy cases. The adversary proceeding paperwork includes a “complaint”. “A complaint” is an administrative detail that includes your bankruptcy case number and the reasons why you want to discharge your student loans in bankruptcy.

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