Behind on Student Loans? Two Ways to Save Your Finances

Submitted by Rachel R on Tue, 04/17/2018 - 10:23am

Behind on Student Loans? Two Ways to Save Your Finances

Student loan relief is possible in bankruptcy

Image by JeShoots via Pixabay

Student loan debt is on the rise and is unique among types of debt because of the powers of the creditor and lack of statutory limits on collection. Federal student loans do not have a statute of limitations and debt collectors working for federal loan servicers have tools many other collection agents do not.

As of last year, American student loans have spiraled to $1.48 trillion with the average debt for recent college grads at $37k, up 6% over the prior year, according to Student Loan Hero. For many consumers, student loans can be financially devastating, particularly for those who:

  • Didn’t graduate, but still have student loan debt
  • Are disabled, suffer chronic illness, or can’t find a steady job
  • Are in an industry with low wages and limited growth opportunity
  • Those who are older and on a fixed income

Consequences of delinquent student loans

There are two stages of lateness when it comes to student loans. These are delinquency and default. If you miss a student loan payment, you are immediately delinquent. This means you have breached the terms of your agreement by failing to make the agreed payments. If you missed one payment, and make it up soon, you will no longer be delinquent.

When delinquency lingers for months and months, you’re on the slippery slope to default, which is the line drawn in the sand at 270 days late. When you go into default, your student loan servicer will likely get much more aggressive with debt collection efforts. Loan servicers have great powers of collection that can wreck your already-troubled finances.

These include:

  • Wage garnishment with just a 30-day notice
  • Income tax refund garnishment
  • Social Security payment garnishment
  • Liens on personal property and assets

The good news is, there are options to cope with unmanageable student loan debt, but you must take steps to get the debt under control. No one will do it for you. There are two ways to get student debt back under control and save your finances. You can either consider filing bankruptcy or getting on an income-sensitive repayment plan. Let’s talk about the latter first.

#1 Income-driven repayment plans

If your student loan debt outweighs your ability to pay and you have federal student loans, you can apply for a modified repayment plan based on your income. Some of these plans only require you to pay 10% of your discretionary income no matter the size of your loan balances. After 20 years of payments, remaining balances are discharged, although there are tax consequences.

There are several income-driven plans, but you must demonstrate that you cannot pay the standard 10-year repayment loan installments on your current income to qualify. To estimate payments, you calculate discretionary income as the difference between your income and 150% of the North Carolina poverty level for your household size times 10%.

#2 Bankruptcy

If you can’t afford any repayment at all such that even an income-driven plan is out of reach, bankruptcy may be a better alternative. While it’s not a sure thing to get bankruptcy relief on student loans, there’s a chance you can have some or all of your debt discharged, depending on the type of loans and your unique circumstances. To start the process, your lawyer files an adversary proceeding which is a special request for relief.

The court looks for “undue hardship” which means if you’re forced to repay your student debt, you will meet the following criteria:

  • You would be unable to maintain a basic standard of living if you had to pay back the debt.
  • Your hardship will last for a large part of your repayment period.
  • You must have honestly tried to repay your student loan debt before filing.

If you are disabled, older, unemployed, continually earn poor income, or have chronic health problems, you are more likely to have success discharging student loans in bankruptcy, but every case is different, so the best course of action is to seek the advice of a bankruptcy attorney experience with student loan debt relief.

To find out more about student loans and bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 to schedule a free student loan bankruptcy consultation. Read reviews from satisfied clients then come see us at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.




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