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Bankruptcy won’t wipe out a student loan without some additional work. Unless it’s not a student loan at all.
If you’re dealing with student loan debt, you probably already know that they are usually exempt from discharge in a bankruptcy case. In fact, getting your student loans wiped out in bankruptcy requires an additional determination by the judge.
But what if the loan you consider to be your student loan … isn’t one at all?
How Student Loans Are Treated In Bankruptcy
When you file for bankruptcy, certain debts will follow you after the case is over. Under the law, one of those categories of debts is what’s called and educational benefit – commonly known as student loans.
In fact, there are three categories of student loans that are exempt from discharge. They are:
- an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution;
- an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
- any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.
Governmental Units And Nonprofit Institutions. This one is simple: if we’re dealing with a federal or state loan, it’s not discharged in bankruptcy.
And if the program that issues the loan is funded in whole or in part by the government or a nonprofit institution, it’s not discharged in bankruptcy.
This also includes any overpayment of a benefit, such as a scholarship or grant that contains a provision requiring you to repay the funds if the entity disburses too much.
Educational Benefit, Scholarship, or Stipend. Let’s say you get a stipend as part of a graduate or undergraduate degree. If you don’t live up to your part of the bargain, usually by way of not performing academically or professionally. The terms of the stipend will usually include a provision that demands repayment of the monies paid or tuition forgone. That’s not discharged in bankruptcy.
So, too, if you’re the beneficiary of a scholarship that requires you to perform in some fashion – either by maintaining a certain grade point average, playing on a team, or graduating with a certain course of study.
Qualified Education Loan. This is the biggie, folks. Let’s say you got a loan to go to college. It’s a private loan, taken from a bank and not clearly stated to bean educational loan. If the IRS doesn’t consider it as a qualified education loan, you’re home free.
The IRS Definition Of A Qualified Education Loan
Under Section 221 of the Internal Revenue Code, a qualified education loan is any debt incurred by the taxpayer solely to pay qualified higher education expenses so long as that debt satisfies the following three criteria:
- the debt was incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred; AND
- the higher education expenses were incurred within a reasonable period of time before or after the indebtedness is incurred; AND
- the expenses are attributable to education furnished during a period during which the recipient was an eligible student.
The IRS specifically states that a debt owed to a person who is related to the taxpayer is not considered a qualified education loan. Nor is a loan taken against your pension or retirement plan considered a qualified education loan.
Guarantors And Cosigners Rejoice?
Notice that the IRS specifically states that the loan must be made on behalf of a taxpayer, taxpayer’s spouse, or a dependent of the taxpayer to be considered a qualified education loan.
Relatives and others who guarantee or cosign a loan for a student who is not a spouse or dependent may end up being able to jump through a loophole. That is, if the Note doesn’t specifically state that the loan is for educational purposes.
Not So Simple
Most student loans will fall neatly into one of the categories that keeps them from being automatically wiped out in bankruptcy. After all, private lenders are usually too smart to let their debts get wiped out.
But for some people, the loophole of getting a student loan discharged in bankruptcy may magically appear. The important thing to remember is to always review the loan papers with a keen eye.
A consumer facing a insurmountable financial burden many times pursue either a Chapter 7 or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy provides a consumer relief in the form of what is known as a discharge from a good portion of his or her debts. On the other hand, relief in a Chapter 13... Read more »
The post I Just Received a Motion for Relief from Stay: What Do I Do? appeared first on AllmandLaw.
A consumer facing a insurmountable financial burden many times pursue either a Chapter 7 or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy provides a consumer relief in the form of what is known as a discharge from a good portion of his or her debts. On the other hand, relief in a Chapter 13... Read more »
The post I Just Received a Motion for Relief from Stay: What Do I Do? appeared first on Allmand Law Firm PLLC.
A consumer facing a insurmountable financial burden many times pursue either a Chapter 7 or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy provides a consumer relief in the form of what is known as a discharge from a good portion of his or her debts. On the other hand, relief in a Chapter 13 […]
The post I Just Received a Motion for Relief from Stay: What Do I Do? appeared first on Allmand Law Firm PLLC.
There is a right way and a wrong way to deal with debt. The right way requires courage to take action. This article provides an effective plan to determine whether filing bankruptcy is the right answer.
1. How Many Months to Become Debt Free?
The answer to this question is essential and requires work. We need to know household income and household expenses. The left over money is used to pay credit card and medical bills. Bankruptcy may be the solution if it will take too many months to become debt free.
To help figure out household budget, here is a link to free budget forms from Dave Ramsey. I am a huge fan of Dave Ramsey. He is a great source to help get out of financial trouble. He was forced to file bankruptcy and has since made a good living helping others deal with debt. I offer his financial management course to all my bankruptcy clients.
Now, we need to add up credit card and medical bills (unsecured debt). Having trouble figuring out these types of bills? These types of bills will be listed in a credit report. Get a free credit report from www.annualcreditreport.com. Ignore the offers to pay money for your credit score.
Finally, we have the numbers to determine how long it will take to pay off unsecured debt. Divide the total of all unsecured debt by the money left over from the monthly budget. The answer represents the number of months it will take to pay off bills. Will it take more than three years to become debt free? Tinker with the expenses that can be changed to see if you can become debt in a reasonable amount of time.
2. Am I Being Forced to Take Action?
Are bills forcing you to take some action that will require an extreme financial consequence? Being sued by a creditor like Midland Funding? Are your wages being garnished by a creditor? Are you considering withdrawing money from a 401k to pay creditors?
3. Consult A Bankruptcy Attorney!If it is going to take too long to become debt free, or if you are being forced to take some action that will have a financial consequence, go talk to a professional.
I, like most Fresno personal bankruptcy attorneys, do not charge for the first consultation. If you contact an attorney that wants to charge right away, try someone else. Remember, your chief goal is to determine whether you should file bankruptcy. It's also important to feel comfortable with the attorney. Trust your instincts. There are a lot of attorneys that file Chapter 7 bankruptcies in Central California.
The first meeting can last anywhere from 30 minutes to 90 minutes. Make sure you are meeting with the attorney, and not a staff member. The attorney's goal should be to explain the bankruptcy process and determine whether bankruptcy is the best solution. If the attorney pushes you to filing bankruptcy without evaluating your income and bills you are probably meeting the attorney. If the attorney wants to pass you off onto one of his/her staff members, you might want to consider another office.
You should have all your questions answered. The attorney should have a broad understanding your personal finances. These topics include your assets, income, and expenses. At the end, you should feel more comfortable deciding whether you want to file bankruptcy. You should be quoted a price to file bankruptcy. I typically charge $1200. I often quote prices that are lower than $1200. Sometimes higher if your case requires more like you operate a business, have a lot of creditors, or if you make car payments. Each case is unique. The Eastern District of California Bankruptcy Court charges $335. There are two online bankruptcy classes can cost as low as $35.
It is helpful to bring copies of the following documents to your meeting:
1. Driver License
2. Social Security Card
3. Last two years of filed tax returns
4. Last six months income stubs. (Pay stubs, unemployment, disability, etc.)
5. Lawsuits, garnishments, foreclosures, abstract of judgments or tax liens.
6. Retirement statements (Your most recent 401k, PERS, STRS, and/or pension statements
7. Title certificates to all cars, trailers, Boats, etc.
8. Most recent invoice statements to vehicles and real property
9. Life insurance policies.
10. Credit report from www.annualcreditreport.com (the free report)
11. If you are required to pay child support or alimony, than provide Marriage Agreement and court order.
12. License of professionals, e.g. sales agent, truck driver, attorney.
Photo credit: Marco Bellucci: Flickr
When individuals are talking to their financial adviser about their future and their hope to retire, the financial adviser should have at least a basic understanding of the bankruptcy process. While Bankruptcy is an extreme measure that should not be taken lightly, it is also a powerful tool for those in debt to free themselves of their past mistakes and get on track for a bright future.
Often times I see individuals who have been seeing a financial adviser for years. He has advised them how much money they need to save for retirement. He has advised them when they should start saving and how much they should be putting away each month. He may even have helped them develop a plan to pay off their credit card debts over the course of the next decade. What I rarely see is a financial adviser who has taken the time to review the individuals case with a qualified bankruptcy attorney.
Advising a client to spend the next decade of his or her life repaying credit card debts is simply not sound financial advise. First, a decade is simply too long of a time to expect individuals to spend repaying old debts. Second, the money being used to repay those old debts, often with absurd amounts of interest, could be used to help advance the retirement goals of the client. Third, a decade is simply too long of a time to plan around “unforeseen circumstances.” Therefore, even if the client is able to pay off the debt, they may find themselves disabled, laid off, or changing careers. Meanwhile, they have no savings to fall back on because their financial adviser had them spend a full decade dealing with past mistakes.
It is important that individuals who have a large burden of debt, work with both a financial adviser AND a bankruptcy attorney to be sure that they have all of the options available to them to help them build a brighter future. If you are in need of financial advice, or if you are a financial adviser who would like to sit down with me to discuss this powerful financial planning tool, please call me at 248-629-6367.
If you’ve fallen behind on your student loans, you may be at risk for wage garnishment. Here are some tips on how to avoid garnishment and get back on track.
When you default on your federal student loans, the government can begin an administrative wage garnishment without a judgment from a court.
Under federal regulations, the government can take 15% of your disposable pay. You can, however, protect wages in an amount equal to 30 times the minimum wage.
In order for the government to begin a garnishment of wages, The Department of Education or a guaranty agency must notify you and give an opportunity for a hearing.
In order to avoid a wage garnishment, you must:
- Negotiate a voluntary repayment and make your first payment within 30 days from the date the garnishment notice was sent; OR
- Make a hearing request in writing postmarked no later than the deadline on the garnishment notice.
Request A Hearing
For most people, it’s safest to request a hearing. If you do so within the time specified in the notice, the wage garnishment cannot go forward until the hearing is held.
You can still request a hearing after the garnishment begins, but it won’t stop the government from taking your wages unless you win the hearing.
Defenses To Federal Student Loan Garnishment
The widely-used defense to an administrative wage garnishment order is that the garnishment would cause financial hardship to you and your dependents. You’ll need to provide documentation to sustain your defense.
Other defenses include:
- You were involuntarily terminated from last employment and have been employed in current job for less than 12 months;
- The federal student loan has been paid in full;
- It’s not your loan;
- You are making voluntary payments;
- You have filed for bankruptcy and the case is still open;
- The student loan was discharged in bankruptcy;
- You have a refund right against the school, but have not received the refund;
- The borrower is dead or totally and permanently disabled;
- The loan is not enforceable due to fraud or forgery; or
- You are eligible for a closed school or false certification discharge.
If you receive a notice of a pending administrative wage garnishment, call the collection agency handling your account and get the required forms to request a hearing. Be sure to complete the forms and deliver them within the time required to stop the garnishment.
You may or may not win your hearing, but one thing’s for sure – if you don’t request the hearing, you will definitely have a garnishment to deal with.
Attorney Jeff Hsu of JCH LAW FIRM is a California Board Certified Bankruptcy Legal Specialist
JCH LAW FIRM is pleased to announce that attorney Jeffrey Hsu is now a California State Bar Board Certified Legal Specialist in Bankruptcy Law as of August 1, 2014.
We look forward to continuing to serve the Southern California community at large, and we hope our current and future clients feel even more confident that JCH LAW FIRM is right for their needs.
Attorney Jeff Hsu of JCH LAW FIRM is a California Board Certified Bankruptcy Legal Specialist
JCH LAW FIRM is pleased to announce that attorney Jeffrey Hsu is now a California State Bar Board Certified Legal Specialist in Bankruptcy Law as of August 1, 2014.
We look forward to continuing to serve the Southern California community at large, and we hope our current and future clients feel even more confident that JCH LAW FIRM is right for their needs.
Attorney Jeff Hsu of JCH LAW FIRM is a California Board Certified Bankruptcy Legal Specialist
JCH LAW FIRM is pleased to announce that attorney Jeffrey Hsu is now a California State Bar Board Certified Legal Specialist in Bankruptcy Law as of August 1, 2014.
We look forward to continuing to serve the Southern California community at large, and we hope our current and future clients feel even more confident that JCH LAW FIRM is right for their needs.
The post JCH LAW FIRM Pleased To Announce Attorney Jeff Hsu is Now a California Board Certified Bankruptcy Specialist appeared first on JCH LAW FIRM.
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