Bankruptcy and student loans
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One route that many choose to pursue when it comes to the American dream is going to college, but this can come at a price in the form of student loans. In North Carolina, more than 60% of grads come out of college owing money, and the average student loan debt is more than $25k and rising. Student loan repayment can weigh consumers down for decades, but in some cases, Greensboro bankruptcy might help. However, it’s still not easy to get relief on student loans.
Despite this, a new piece of legislation would help discharge unaffordable student loans in bankruptcy. The bipartisan bill was brought forward in the House by Democratic Congressman John Delaney from Maryland, co-sponsored by Republican Congressman John Katko from New York. House Resolution 2366 is titled The Discharge Student Loans in Bankruptcy Act. The law, if passed, would allow student loans to be discharged like other unsecured debt.
This law would greatly benefit those drowning in student loans, but it’s unlikely to gain passage. Other similar bills have failed in the past, but it’s important to know that even without this proposed legislation, there are still opportunities to use Greensboro bankruptcy to gain relief on student loans. Here’s what you need to know about dealing with overwhelming student loans.
For your student loan to be reduced or discharged in bankruptcy, you must prove to the court that you will face undue hardship if you’re forced to repay the loan. The law requires you to prove undue hardship, but the law doesn’t define this concept, so it’s open to interpretation by the court. Some courts force a stricter interpretation of “hardship,” while others are more lenient. You might receive partial relief, or if your circumstances are direr, you might receive total relief.
The Brunner Test
Many courts use the Brunner test to assess whether paying your student loans would cause undue hardship. This is a three-pronged test, established from a 1987 court case. Under the test, there are three conditions to be met:
- Standard of living: You must show that on your current income and expenses, you cannot maintain a reasonable standard of living for yourself and your dependents if you must repay your loans.
- Persistence: You must show that your current financial predicament will persist for the term of your student loan repayment.
- Good faith: You must show that you made efforts in good faith to repay your student loans.
Extra step required to discharge student loans
Although it is possible to get partial or total discharge of student loans in bankruptcy, depending on your circumstances, most debtors don’t even ask for relief in bankruptcy. Your attorney must file an extra step called an Adversary Proceeding on top of your Greensboro bankruptcy petition. This costs a bit more but is the only way to get relief from this unique debt.
An adversary proceeding is a lawsuit your lawyer files on your behalf against the student loan lender. Essentially, you sue them to try and get some or all of your student loan discharged either due to undue hardship or another factor such as fraud, breach of contract, or deceptive and unfair business practices conducted by your college, trade, or vocational school.
Student loans in Chapter 7 vs. Chapter 13
In North Carolina, federal student loan servicers are one of the few creditors that can garnish your wages. Collectors for student loans can also take your income tax refunds and pursue liens on your property. Filing Greensboro bankruptcy can help in several ways. First, you can file an adversary proceeding to try and get partial or total relief on your loans.
Second, when you file, all debt collections must stop during the window of an automatic stay. Third, you may be able to stop a garnishment and even get some garnished funds refunded, depending on your circumstances. Fourth, even if you can’t get loans discharged, in Chapter 7, you can discharge other debt to make room in your budget to deal with your debt.
With Chapter 13, you can roll your student loans up into your debt repayment plan to catch up on them. Bankruptcy can also help you get more time to get a more affordable income-based student loan repayment plan. To find out more about the benefits of bankruptcy on student loans, contact the Law Offices of John T. Orcutt. Read reviews from satisfied clients then call 1-888-234-4181 to schedule a free Greensboro bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.