While filing for Chapter 7 or Chapter 13 bankruptcy will wipe away many of your consumer debts (like outstanding medical bills or even a mortgage), your student loan debt is exempt from the same treatment unless you can prove an “undue hardship”.
Chapter 13 bankruptcy could help provide relief from paying off your student loan debt in the short term with reduced monthly payments, but you’d still be on the hook for whatever loan balance is left after your bankruptcy repayment period ends. Similarly, you’re still on the hook for your student loan debt if you file for Chapter 7 bankruptcy.
When and How can I discharge my student loans?
If you file for bankruptcy, you can file a separate lawsuit within the bankruptcy case called an adversarial proceeding. You would then seek to prove your student loans create “undue hardship.”
Undue hardship is now defined as the “Brunner Test”
The court uses three factors to determine undue hardship.
•You wouldn’t be able to maintain a minimal standard of living if you were forced to repay the loan.
•Your financial hardship would continue for a significant portion of the repayment period if you were forced to repay the loan.
•You’ve made a good-faith effort to repay the loan before you filed for bankruptcy.
More Americans, over the age of 50, are currently facing social security garnishments over college loans. More Americans over the age of 50 are now experiencing a garnishment on their Social Security benefits. This is due to their college student loans that are in default.
This is according to a report from the non-partisan Government Accountability Office (GAO). The report, released on December 19, 2016, stated that 114,000 people in that age group has had their benefits garnished during fiscal year 2015, a process the GAO calls an offset. The report was conducted at the request of two Democratic lawmakers, Sen. Claire McCaskill of Missouri and Sen. Elizabeth Warren of Massachusetts. Warren called the practice of Social Security garnishments “predatory and counterproductive” in a statement released on December 20, 2016.
The garnishment was applied to users who have defaulted on their loans and are drawing at least $750 per month in Social Security benefits. The offset can take up to 15 percent of these users’ monthly payments.
A growing number of seniors are borrowing, the amount of borrowing is increasing, and the rate at which they’re defaulting is increasing. Forty three percent of student loan borrowers over the age of 50 had had their loans for at least 20 years before incurring the garnishment.
The offsets will most severely affect people whose Social Security benefits are already under the poverty line.
Are you, or someone you know, over age of 50 and dealing with student loan debt concerns?
If the federal student loans carried were for your own education, and you are having problems paying, and these loans are still in good standing (not in default) then make inquiry into income-based repayment plans. There are some new options that older student loan holders may not have heard about. If you’re eligible, your monthly student loan payment will be set at no more than 15 percent of your income. You must recertify your eligibility for this plan each year.
There is a newer version of income-based repayment called “Pay As You Earn” which is only available for loans taken out in recent years. If you have older Federal Family Education Loans, you’re NOT eligible for these plans, but you can use a similar plan called income-sensitive repayment. Here, you can choose a monthly payment amount between 4 percent and 25 percent of your monthly income but can only use the plan for five years. Another option is to consolidate your existing Federal Family Education Loans into a new federal direct consolidation loan so that you can take advantage of income-based repayment plans.
If you have Parent PLUS loans that you took out for your children, these loans aren’t officially eligible for income-based repayment. If they are consolidated into the Direct Loan program, they gain eligibility for income-contingent repayment.
If your federal student loans are in default, you could face garnishment of up to 15 percent of your Social Security benefits. You can take advantage, of the options discussed above, to reduce the amount being garnished. Your payment could even be as little as zero dollars under certain circumstances. But first, you’ll have to get your loans out of default, either through rehabilitation, or consolidation.
Senior citizens who are totally and permanently disabled may also want to look into the possibility of having their federal student loans discharged. It is possible to get student loans entirely dismissed, depending on the disability situation, which CAN be done outside of a bankruptcy. My office has been able to get the lender to agree to entirely discharge all student loan debt when I can prove a disability that encumbers the ability to repay the debt.
If the student loan debt is PRIVATE instead of a Federal student loan? Many private student loans don’t come with all the repayment options described above. Private loans also often require a co-signer. Many older Americans cosigned these loans for their children, so both the child and parent are “on the hook” whenever the student can’t repay. If you’re struggling with private student loan payments, consider consolidating or refinancing your loans.
Some private lenders will modify private student loans for borrowers that are facing financial hardship. This typically requires an application process proving the need. I have seen many lenders agree to discount the debt. For example, a father cosigned for a daughter’s loans. The daughter never became gainfully employed. The father was on the brink of a garnishment regarding the debt. The lender agreed to take a deeply discounted lump sum to resolve the matter.
Are you, or someone you know, over age of 50 and dealing with student loan debt concerns? There just might be some relief depending on the circumstances.
Contact the law firm to see if we can help. Phone: 1-888-275-2620