STUDENT LOAN BANKRUPTCY | How to Prove Undue Hardship

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STUDENT LOAN BANKRUPTCY

HOW TO PROVE UNDUE HARDSHIP

STUDENT LOAN BANKRUPTCY

Have you heard your student loans will follow you to the grave and you can't even discharge them in bankruptcy?

Well, today we're gonna show you how to prove undue hardship and get your student loans forgiven in bankruptcy.

Proving undue hardship can be tricky, but we've done the research so you don't have to.

So what happens to student loans during bankruptcy?

It's general advice that the loans are not forgiven unless you show undue hardship through an adversary proceedings. Most courts use the Brunner test to determine hardship, so let’s see exactly how to prove undue hardship.

3 Requirements to Prove Undue Hardship

  1. You wouldn't be able to maintain a minimal standard of living if you have to pay back your federal student loans. You must have a bare-bones budget and have done everything in your power to increase your income with no success.
  2. Must be able to prove that the circumstances are going to be there for the majority of your repayment period. For instance, if you have a serious mental or physical disability, if you receive poor quality education, or if you’ve already maximized the income potential in your current field.
  3. You've made a good-faith attempt to repay your federal student loan before this point. This means that you've tried to make payments, you've negotiated with the lender and you've worked at slashing your expenses and increasing your income.

Let's say you go to bankruptcy court and you go through the adversary proceeding. If it’s successful your loans will either be partially discharged, fully discharged or they could also be restructured. When loans are restructured you'll receive new repayment terms, likely lower interest rate, a longer time-frame to pay them back which will result in lower payment.

If you went to a for-profit school

There is one caveat here to consider if you went to a for-profit school, make sure to raise a defense related to the school’s practices. If you can prove there was a breach of contract or deceptive practices, you can have a chance at convincing the judge to just charge your student loans.

We've read about some of these things happening with schools who promised certain career opportunities or certain wages after graduation as part of luring students into these for-profit schools. A lot of judges are ruling in favor of the students that they were duped or deceived into going to the school in the first place and acquiring all of that debt.

Negatives to Filing Bankruptcy

Obviously, there are some negatives to consider before going into bankruptcy.

  1. It definitely hurts your credit score. You won't be able to buy a house for 7 years.
  2. The legal fees cost money. If you can't find an attorney that will take you on pro bono, you would be out of pocket for those expenses.
  3. It's really exhausting and an extensive process that could take 6 months to a year to complete.

As we've talked about above, if you've done everything you can and you still can't pay back your loans, it might be the only option for you.

If that's the case, here are some things to consider before going into bankruptcy court.

Things to Consider Before Filing Bankruptcy

  1. Make sure you've exhausted all of your other options. We touched on that above, but it's gonna be really important to the court that you've done your best. Not only that, but also to confirm there is no way you can avoid going into bankruptcy. Some of these things could be looking at income driven repayment plan, pursuing forbearance or deferment, or if you're eligible definitely look into public service loan forgiveness.
  2. With private loans, make sure that you've already talked to your lender and you've tried to restructure or get reduced payment plan, reduce interest rate, or reduce payments. Definitely call your lender before pursuing bankruptcy.

After you've exhausted all those options, the next step would be to find a lawyer that has successfully discharged student loans. The lawyer would need to file an adversary proceeding, which we will talk about it in a bit, to get the student loans successfully discharged.

While an attorney isn't absolutely necessary, you'll want one to improve your odds of having the loans discharged as it is quite difficult to get them discharged.

You'll likely also need to find a pro-bono attorney who would take your case on free of charge. If you are in this situation where you can't pay your student loans, you'll likely be unable to afford the attorney fees otherwise.

Then, once you’ve found a lawyer who will take you on pro-bono, just do what the lawyer says. You may be able to file chapter 7 or you may be able to file chapter 13 depending on your personal situation.

With chapter 7 your loans could be discharged, but with chapter 13 your loans would be restructured and not discharged. So, with chapter 13 you will have to continue to pay those student loans, although they will be on more manageable terms.

Then, the lawyer will file the adversary proceedings, which is a lawsuit related to the bankruptcy and then the judge will determine whether not you will receive a full discharge, a partial discharge, no discharge or a restructure.

As always, talk to a legal professional before making any big decisions like this. You can find a list of reputable lawyers by searching the American Bar Association. Many of them will offer a free consultation to review your case and to access your personal situation.

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DENIED? Public Service Loan Forgiveness HORRORS

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DENIED? Public Service Loan Forgiveness HORRORS

DENIED pslf horrors

You may have seen in the news that 99% of the applicants to the public service loan forgiveness program have been denied.

By the end of this post, you'll know exactly why people are being denied and how to not be one of them. Scroll to the bottom if you'd rather watch the video.

We did the heavy lifting to make sure you get your loans forgiven.

Why are people being denied for public service loan forgiveness?

The first reason is that they don't have the right loan. To be eligible for public service loan forgiveness, you have to be in a Direct Loan. If you have other loans they can be consolidated into Direct Loans to be eligible, but you have to do that first.

The second reason is they refinance their debt in the middle of making their qualifying payments. Whenever you refinance your debt, even if you refinance to a direct loan, the clock still starts over, unfortunately.

The third reason is they didn't make 120 qualifying payments. In order to be a qualifying payment it has to be for the full amount shown due, so you can't do any partial payments. It can't be any later than 15 days after due date, so a late payment does not count. You also have to be employed by a qualifying employer.

What is a qualifying employer?

These are 501C-3's or nonprofits, in the government at any level (federal, state, local or tribal). You can work in emergency management, military service, public safety and law enforcement, public interest, legal services, early child education, public service for individuals with disabilities, public service for the elderly, public health, public education and public library services. There's also a lot with schools, like school library services, other school-based services, the Peace Corps and AmeriCorps also count.

In order to also be counted as a qualifying employer, you must be employed full-time at at least 30 hours per week and you cannot have your loan in a grace period, deferment, or forbearance.

The fourth reason why people were denied for public service loan forgiveness is that they were not on an income driven repayment plan. You must be on the PAYE, REPAYE, IBR or ICR plans. One caveat is the standard ten year repayment plan, also counts. If you made a year of payments on that plan before switching to an income based repayment plan, you'd be able to count those qualifying payments. However, if you went to it any type of extended payment plan that is a payment period longer than 10 years, those do not count towards qualifying payments.

The fifth reason why these people are not being approved for the public service loan forgiveness program is that they did not submit the proper paperwork. You must submit two pieces of paperwork, one is the public service loan forgiveness employment verification once per year and the income-driven payment plan income verification  once per year.

Make sure download our free student loan flow chart to help you to pay off your student loans the fastest.

Student Loan Flow Chart

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Public Service Loan Forgiveness

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PUBLIC SERVICE LOAN FORGIVENESS

Get your student loans forgiven in 10 years?

public service loan forgiveness

What is Public Service Loan Forgiveness?

How to Forgive Student Loans in 10 Years

Did you know you can have your student loans forgiven in 10 years?

By the end of this post, you'll know exactly how to qualify for the public service loan forgiveness program. Scroll to the bottom if you'd rather watch the video.

We heavily researched the public service loan forgiveness program, so that you won't be one of the 99% of applicants who applied, but have not yet been approved.

What is the Public Service Loan Forgiveness Program?

The public loan forgiveness program is for people who work in public service and they're able to have their student loans forgiven after 10 years as opposed to the regular 20 to 25 years for people in the private sector who are on an income-based repayment.

We personally worked in the private sector and couldn't take advantage of this program, but it's a great benefit for those who can.

The public service loan forgiveness program was opened in 2007, so the first group of people who are eligible to receive forgiveness just came through in October 2017.

Check out our student loan flowchart to help guide you through the process of figuring out if you're eligible.

There are some details that you have to be aware of if you want to take advantage of public service loan forgiveness.

Are your loans qualifying?

The first thing to do is to make sure your loans are qualifying. Qualifying loans are direct loans only. You can consolidate into a direct consolidation loan from other loans like FFEL, Stafford Perkins, but you need to remember that the clock restarts whenever you consolidate. Parent loans can only be forgiven if the parent works in the public service sector and consolidates into a direct consolidation loan.

The second thing to be aware of is qualifying payments. With the public service loan forgiveness program, you have to make 120 qualifying payments. It's not necessarily ten consecutive years, it's the amount of payments that you make.

For example, if you made five years of payments and then had some payments that don't qualify for some of these reasons we'll talk about, you can pick up where you left off. You don't have to start over with another ten year period if that makes sense.

The third thing to be qualifying payment is that it has to be under a qualifying repayment plan. The qualifying repayment plans are all income driven. The pay-as-you-earn plan, the revised pay as you earn plan, the income-based repayment plan or income contingent repayment plan. The standard ten year plan counts, but any other extended payment plans, like a 20 or 25 year standard plan, do not count, so that's something to aware of.

The income contingent repayment plan is the only payment plan that allows parent loans to be on an income-based repayment, so if you do have a parent plus loan, it has to be in that repayment plan.

The fourth thing is the payments must be for the full amount shown due, so you can't do any partial payments and can't be later than 15 days after the due date.

You also have to be employed by a qualifying employer in the public service sector and you cannot have your loan in a grace period (which is the period right after you graduate), you can’t be in deferment,  postponing payments or in forbearance.

What are qualifying employers?

  • Government organization at any level
  • Nonprofits 501-3C’s
  • Other nonprofits like:
    • Emergency management
    • Military service
    • Public safety
    • Law enforcement
    • Public health

But you have to make sure that you fill out the Employment Certification form at least every year but preferably every six months, just to make sure that your employer is qualifying and that you are on track to be approved for the public service loan forgiveness program.

You’ll also want to make sure you’re current on the Income Driven Repayment Plan Form, which is required to be submitted annually as well.

So, download our student loan flow chart now, it'll help you understand the best way to pay off your student loans the fastest.

Student Loan Flow Chart

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