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4 Ways To Manage Student Loan Debt

4 Ways To Manage Student Loan Debt

More than four million borrowers have defaulted on student loans, but if they’re hoping bankruptcy will bail them out, they better have a Plan B

If your student loan payments seem overwhelming, you should know that you’re not alone. Americans are shouldering a growing student debt burden; In fact, U.S. borrowers owe a combined $1.38 trillion in student loan debt, according to the Federal Reserve Bank of New York  . PDF File’s report. As of the end of 2017, 11% of that debt had payments that were more than 90 days overdue.

In the past 20 years, student loans have grown to be a factor in most financial dealings including how those obligations affect your bankruptcy decisions. For example, mortgage lenders are now including the student loan payment when assessing your ability to afford a specific house payment. Bankruptcy will probably not help you deal with student loan liabilities as they are very difficult to get discharged in bankruptcy, except under extraordinary circumstances.

Those extraordinary circumstances take into consideration three components:

  • Defining and illustrating in detail that you have a financial hardship.
  • The state of your current circumstances and your potential for improvement or not.
  • Have you demonstrated good faith in the past?
  • A permanent mental or physical disability or disease that is not likely to improve over time.

The judgment in all three areas is up to the bankruptcy court and they tend to be pretty stringent. One of the more clearly defined conditions may be the existence of a physical or mental disability or disease as documented by appropriate medical physicians specializing in disability evaluations.

Even though you may not be able to wipe out your student loan in Chapter 7 or Chapter 13 bankruptcy proceedings, you may be able to force the student-loan lender to accept the amount you can afford under a Chapter 13 plan which sets up a budget for you to repay your debts in a 3-5 year time frame. You need to be aware that you must pay the balance and the additional interest that accrued after your chapter 13 bankruptcy case is over.

4 Strategies To Help Manage Your Student Loan Debt:

1. Deferring the loan due to undue economic hardship.

The deferment of your loan means that you don’t have to pay interest on the loan during deferment if you have a subsidized loan. If you have an unsubsidized loan, you’re responsible for the interest during deferment. If you don’t pay the interest as it accumulates, it will be added to your loan balance, and the amount you have to pay in the future will be higher. You have to apply for a deferment with your loan servicer, and you must continue to make payments until you’ve been notified your deferment has been granted.

Try to get your lender to change the terms of your loan so it is more affordable, for example, you may be able to forego some payments or lower them enough to impact your budget. Ask your lender if you can defer the loan because of economic hardship, or other circumstances beyond your control. It is up to the court to decide whether you meet the “undue hardship” standard. Here are a few examples of successful and unsuccessful cases from the “Student Loan Borrower Assistance” website.

2. Asking for a loan forbearance.

With a forbearance of your loan you get to temporarily suspend monthly payments. This method will cause you to continue to accrue interest and lengthen the payment period in the long run. Borrowers who have federal student loans can receive forbearance to temporarily stop making payments or reduce payments under certain conditions. With forbearance, the borrower is responsible for paying the interest that accrues during the forbearance period.

3. Consider an income-driven repayment plan.

These plans base your monthly student loan payments on your income and family size. In some cases, your payment could be as low as $0 per month. Check out this website,  income-driven repayment plan to evaluate your options. An additional site of interest would be the “Federal Student Aid” site, at https://studentaid.gov/manage-loans/repayment/plans/income-driven a government website loaded with salient information on how to get started and what your options are for your loan.

4. Wiping out your student loan from the “U.S. Department of Education.”

If any of the following circumstances apply to your situation there is a possibility of total student loan debt forgiveness from the U.S. government:

  • You become permanently and totally disabled.
  • Other reasons that are out of your control, like, your school closed, or you were admitted with improper credentials.
  • You are engaged in full-time teaching.
  • You become a Head Start employee.
  • Are in the Peace Corp.
  • Are in the military.

Even though it may seem difficult to meet the strict standards of the bankruptcy court’s definition of undue hardship. If you succeed, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Assuming you can discharge your student loan debt by proving hardship documentation, bankruptcy may be a good option for you. It is a good idea to first consult with an experienced bankruptcy lawyer who understands the pros and cons associated with bankruptcy and which chapter would be best in your situation. For example, bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles. There are also limits on how often you can file for bankruptcy within a certain time frame.

Your Personal Calculator of Potential Earnings Versus Student Loan Payments

Use this interactive calculator to determine the following:

  • How much you can afford to borrow in student loan funds based on your future expected earnings.
  • The salary you will need in order to afford your student loan payments.

First, go to this website at http://mappingyourfuture.org/paying/debtwizard/ to use the interactive calculator you enter the salary you anticipate earning upon graduation. The calculator will calculate the maximum amount of student loan debt you should borrow. If you enter the current amount borrowed in student loans and the amount you anticipate borrowing throughout your college career, the calculator will return the salary required to make payments on this debt. You can update the interest rate to reflect the interest rate of your loans if it is not 6.8 percent. Click here for a chart with Direct Loan interest rates.

student loan debt graph
student loan debt graph

In conclusion please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.

3 Types of Asset Transfers and Their Risks

3 Types of Asset Transfers and Their Risks

Don’t Try to Outsmart the System

Asset transfers can pose a problem if not handled with knowledge and guidance from your bankruptcy attorney. As the saying goes, “This is not their first time at the dance”. Bankruptcy courts do cases all day long. They have seen it all. You are not going to be able to outsmart them, so please don’t even try. Because the consequences are serious. It is absolutely necessary to be truthful and accurate in the filing of documents. When listing assets and debts, you are signing, under oath, that the statements are true. If they are not you are committing perjury, a crime, punishable by fine or jail time. This is also true for the answers you give at the 341 meeting.

It is imperative, to begin with accurately listing all your assets and debts. Remember, debts that are not listed are not discharged and unlisted assets or potential assets can cause your bankruptcy to be reopened even years after it is closed.

1. Fraudulent Asset Transfers

Fraudulent property transfers are where you transfer or conceal property with the intent to deceive the court.

Transferring property before bankruptcy can lead to big trouble. Transfers include giving away, selling, and concealing assets. You need to discuss any transfers with your attorney before you file for bankruptcy. There are numerous filing and technical details that can run afoul of the bankruptcy court. They are covered in section 544, 547, and 549 of the bankruptcy codes.

The key point here is that the bankruptcy trustee has the power to overturn, void and reverse many property transfers. Worst still, fraudulent transfers can lead to denial of your bankruptcy petition and even jail. If the court denies your bankruptcy, none of your debts are dismissed, all your nonexempt assets are surrendered, and the bankruptcy is on your record.

2. Constructively Fraudulent Asset Transfers

Constructively fraudulent property transfers are those that are not necessarily intentionally fraudulent but can be so close as to still be cheating. The typical example is giving away assets to friends and family.

3. Preferential Asset Transfers

Creditors have the right to receive as much is legally possible. So, when you pay a favored creditor, the others will receive less. That is unfair and the trustee has a right to get those assets back for the benefit of all creditors. General those are transfers done with 90 days of the bankruptcy filing. The time limit may be extended to one year if made to “insiders” like family.

Payments that are not considered preferential are:

  • Small payments of less than $600 to a single creditor.
  • Payments on secured debts, like payments for car and mortgage that are just to continue to keep them current.
  • Payments for current expenses, like rent, utilities, and food.
  • Payments for back or current alimony or child support.

In conclusion please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.