New Student Loan Program and Debt Relief

Posted on July 12th, 2009 in Bankruptcy Alternatives, Debt Settlement, Student Loans | No Comments »

I have recently learned about a new program that will be good news to the hundreds of thousands of recent college graduates with significant student debt. A new program called Income-Based Repayment (“IBR”) may help you control your student loan debt.

IBR is a program introduced by the government in 2007; however, its full effects didn’t start until July 1, 2009 This program was designed to make sure that graduates who aren’t earning a significant income after graduation aren’t spending all their income on repaying their student loans.

IBR can help with individuals who meet the following criteria:

  • Have loans (to students, not their parents) from either the Direct or Guaranteed (FFEL) loan programs or (most) government-funded loans
  • Have enough debt to qualify. Specifically, you must have debt that would require you to spend more than 15 percent of your income in excess of 150% of the poverty level to pay off your loans in ten years – calculator available here

Interest Rates for Adjusted Loans

While the IBR program may make your monthly payments more affordable, it could also mean that your monthly payments don’t cover your full interest rates. This means that:

  • For federally subsidized loans, the government would pay the remaining interest for the first three years
  • For non-subsidized loans, the unpaid interest would be tacked onto the principal amount you owe

The second option may mean you end up paying more in the long term, but if your earnings increase over the years, this likely won’t be a significant problem. Plus, the IBR program has the unique provision that any amount still due after 25 years is forgiven.

What is Public Service Loan Forgiveness?

It’s the other loan forgiveness program taking full effect this month, and it’s designed to help those who work in certain so-called public service jobs, including those for the government and nonprofit 501(c)(3) organizations.

If your job qualifies under this program, your loans may be forgiven in full after 10 years of work (during which time you make normal loan payments). And, if your salary qualifies you for IBR loan payments while you’re working, you can still use that program to make payments more affordable.

To find out whether your employment situation may qualify you for help with student loans, visit IBR’s website. While student loans are not dischargeable in Chapter 7 bankruptcy, unless you are in a hardship situation, and have to be paid during the Chapter 13 bankruptcy, IBR may be that last piece of the puzzle on your road to a financial fresh start.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a bankruptcy attorney.

Chapter 7 Bankruptcy, Student Loans and Hardship Discharge

Posted on June 19th, 2009 in Chapter 13, Chapter 7, Student Loans | No Comments »

Almost everyone who has student loans knows that student loans are not dischargeable in bankruptcy.  So why would a debtor meet with a bankruptcy lawyer regarding student loans?  There are several good reasons to discuss your particular situation with a bankruptcy lawyer.

Sometimes a bankruptcy, either Chapter 7 or Chapter 13, can eliminate or reduce other debt, freeing up income to make the student loan payments more affordable.  A Chapter 13 bankruptcy can pay some, if not all, of the student loan debt.  If a Chapter 13 payment plan does not pay the student loans in full, it may be possible to propose a plan that will pay enough to reduce principal and make the debt more manageable.  If you have a loan that will be forgiven, a Chapter 13 may help you deal with the payments until you have the opportunity to take advantage of debt forgiveness programs.

There are also provisions which allow a bankruptcy court to determine that the student loan debt creates an undue hardship.  Section 523(a)(8) of the bankruptcy code says that student loans cannot be discharged in either chapter 7 or chapter 13, unless repaying the student loans would be an undue hardship on you or your dependents. Unlike some other exceptions to dischargeability, this section contains no deadline for either you or the student loan creditor to bring the matter before the bankruptcy court. Although the courts have interpreted that provisions very narrowly, and it is very difficult to litigate these issues for various reasons, you and your bankruptcy lawyer may be in a position to take advantage of those provisions.

Here in Rochester, Judge Ninfo addressed dischargeability of student loans and the so-called “hardship discharge” in In re Martin, holding that in order to obtain a discharge, the debtor must meet the three-part test established in Brunner v. New York State Higher Education, 831 F.2d 395 (2nd Cir. 1987). This test has been summarized in In re Kraft, 161 B.R. 82 (Bankr. W.D.N.Y. 1993) as:

[A] Debtor seeking to discharge an education loan must show:

1. That the Debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself (and any dependents) if forced to repay the loans;

2. That additional, exceptional circumstances exist, strongly suggestive of continuing inability to repay over an extended period of time, or indicating a likelihood that her current inability will extend for a significant portion of the loan repayment period; and

3. That the Debtor has made good faith efforts to repay the loans.

In Martin, the debtor received a hardship discharge based on the following set of facts: ”(1) the Debtor did receive an Associate’s Degree in Liberal Arts from Monroe Community College in May, 1988; (2) since her graduation, the Debtor has been unemployed and for a number of years has been receiving Social Security Disability, Medicaid, food stamps and Section 8 housing assistance; (3) the Debtor is a counseling client of the University of the State of New York/Office of Vocational and Educat ion Services for Individuals with Disabilities (“VESID”) where she has been counseled to set a vocational goal of “homemaker;” (4) the Debtor is in individual therapy at the Steuben County Community Health Center; (5) the Debtor suffers from several ongoing medical problems, including degenerative arthritis in her knees, morbid obesity, chronic asthma, hypoactive thyroidism and fibromyalgia; (6) VESID reports that its evaluation revealed the Debtor suffers from chronic depressive feelings and has suicidal thoughts; (7) the Debtor has no present employment prospects because of her physical and psychological conditions; and (8) there exists no indication of any likely change in the Debtor’s state of affairs.”  Thus, a rather extreme set of circumstances must be present in order to receive a bankruptcy discharge.  At the same time, each case should be judged on its own merits and carefully evaluated by a bankruptcy lawyer to determine how the debtor could benefit by filing bankruptcy.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a bankruptcy attorney.