Student debt is a major burden for individuals, but it also can have a negative effect on economic growth. The debt to pay for education was nearly $1.38 trillion at the end of 2017, with 11 percent of borrowers being 90 days or more delinquent, according to the New York Federal Reserve. All this debt damages the economy, so Jerome Powell, the Federal chairman, has advised that student debt should become easier to include in bankruptcy. This is good news for people who have struggled to pay off their student loans.
High student loan payments have become a large part of the financial burden which leads to filing for bankruptcy. Most often, student loans cannot be discharged in bankruptcy, although a knowledgeable bankruptcy lawyer can often find ways for you to obtain relief or find resources such as deferments that enable you to get caught up on student loan payments.
The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that financial problems can happen to even the most well-intentioned people. We offer a free consultation to evaluate your financial situation. We can help by looking at your income, your student loans and other debts, and your goals and then come up with a plan that’s best for you.
Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation.
The Problem of Student Loans
Before 1976, student loans could be included in bankruptcy proceedings. However, because of high default rates, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This modified the bankruptcy code to allow discharge of student loans only if the debtor is able to prove that repayment would cause undue hardship.
Unfortunately, higher education has become exorbitantly expensive, and students have to borrow large amounts to finance it. Many do not graduate, and even those who do have a hard time finding jobs that pay enough to cover their student loan costs, in addition to costs of living, such as housing, food, clothing, insurance, and cars.
The result; they can’t make the payments on their student loans. According to Experian, the average outstanding student loan balance is $34,144, up 62 percent over the last 10 years, and about 4.6 million borrowers were in default as of Sept. 30, 2017.
While bankruptcy can offer filers a fresh financial start by eliminating many debts, at this time borrowers must still repay their student loans even if other debts have been discharged through bankruptcy — that is, unless they can prove undue financial hardship.
Proving this financial hardship has been very difficult, especially since undue hardship was never defined and case law has never led to a standardized definition. But now the Department of Education has announced it is reviewing when borrowers can discharge student loans, an indication it could become easier to discharge those loans in bankruptcy.
Currently, people with unmanageable student debt have several options to consider:
- Postpone payments with a deferment or forbearance. A deferment lets you put your loan on hold for up to three years; forbearance lets you temporarily suspend payments for up to one year.
- Income-based repayment plans — these allow you to pay a percentage of your income rather than a flat rate, as long as you are under a certain income threshold.
- Having your federal student loan forgiven, canceled or discharged in bankruptcy because of undue hardship.
The Undue Hardship Exception
While the test for undue hardship varies by court, in general, you must meet the “Brunner test” and show . . .
- Poverty — you cannot maintain a “minimal standard of living” if forced to repay the loans.
- Persistence — your circumstances won’t change for a significant amount of time.
- Good faith — you have made “good faith efforts” to repay the loan before filing bankruptcy.
Other courts may look at all relevant factors in your case to determine whether it is an undue hardship for you to repay your student loan or they may use other tests. These tests are difficult to meet, which is why it is important for the government to reassess making it easier for student loans to be included in bankruptcy. In the meantime, if you have a substantial amount of student loan debt, it makes sense to consult with a local bankruptcy attorney to see what can be done.
Does It Pay to File For Bankruptcy?
Although undue hardship can be difficult to prove, it is still possible, but few people try. According to a report in the American Bankruptcy Law Journal on student loan discharges, only .1% of people who file for bankruptcy with student loans try to include them in their bankruptcy proceedings.
However, when people do attempt to include their student loans in bankruptcy, they have a chance of winning or to have at least some of their debt discharged. The study found that 40% of people who attempted to include their student loans in their bankruptcies had some or all of their debt discharged.
If you can prove undue hardship, your student loan will be completely canceled. Even if you cannot, filing for bankruptcy can give you some breathing space, as it also 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.
Contact Us for a Free Consultation
If you have questions about your student loan or any other debt, the seasoned and compassionate Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your entire financial situation. Even if total discharge is not possible, we can help you explore other options such as negotiating with the lender to get more favorable terms and modification or consolidation of the student loan debt.
We are dedicated to getting the best possible outcome to relieve you of financial troubles and help you decide on the path to a brighter future that makes sense in your individual case. We understand what you are going through and will walk you through the process.
Delaying can only worsen your situation, so call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today! Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what debt relief solutions will work best for you.