top Ad Widget

Collapse

Announcement

Collapse
No announcement yet.

Student loans and chapter 7? Can student loans be discharged?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Student loans and chapter 7? Can student loans be discharged?

    Student Loans: Maybe They Can Be Discharged After All

    By Craig Andresen, Attorney at Law on Mar 14, 2008 in Discharge, What Can and Cannot Be Forgiven, Student Loans

    Section 523(a)(8) of the bankruptcy law states that student loans cannot be discharged, unless payment of the student loans would impose an undue hardship upon the debtor or his dependents. This section has been part of the bankruptcy law for over twenty-five years. It was also amended in 2005 to include private student loans.

    However, not all loans incurred in connection with education costs are student loans. For a loan to fall with this section, (1) it must have been made under a government or nonprofit student loan program, or (2) it must be a qualified educational loan under section 221(d)(1) of the Internal Revenue Code, for attending an eligible education institution as defined in section 221(d)(2) of the Internal Revenue Code, and incurred for costs of attendance as defined in section 472 of the Higher Education Act.

    If you have a student loan and are filing for bankruptcy, it would be wise to discuss with your attorney whether your student loan falls within these definitions. Perhaps your student loan bill arrives from Sallie Mae and you attended a public university; in such a case you probably can conclude that your student loan qualifies under definition (1) above. If so, you cannot discharge the student loan unless you can prove undue hardship.

    On the other hand, if you attended a for-profit trade school and obtained a private loan from the school, or from a financial institution to which the school referred you, maybe none, or only part, of such a loan qualifies under definition (2) above. Remember, if a private student loan does not qualify under the extensive legal provisions referred to in definition (2), the loan is dischargeable without your having to prove undue hardship.

    For example, perhaps you were not an “eligible student” at the time the private student loan was made to you; or maybe the loan was not incurred to pay “qualified education expenses”; or perhaps the loan was not for attendance at an “eligible education institution” because the school was not accredited under Title IV of the Higher Education Act. All these are requirements imposed by section 221(d) of the Internal Revenue Code. Failure of a private student loan to meet any of these criteria means that the loan is fully dischargeable, because it would not qualify under section 523(a)(8) of the bankruptcy law.

    Because section 523(a)(8) incorporates requirements contained in section 221(d) of the Internal Revenue Code, persons filing for bankruptcy and owing private student loans should carefully review section 221(d) with their attorney to determine if such loans are dischargeable. Section 221(d) is lengthy, and it imposes many requirements which must be met before a loan can qualify as a student loan. If your loans fail to meet these criteria, you may be able to discharge them in your bankruptcy.
    http://www.************************/...ged-after-all/

    #2
    Limitations on Exception to Discharge of Private Student Loans

    Mark Kantrowitz

    Publisher, FinAid.org
    August 19, 2007

    This document reviews the limitations on the exception to discharge of private student loans as encoded in the US Bankruptcy Code (11 USC 523(a)(8)) as amended by section 220 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), P.L. 109-8,
    effective October 17, 2005.
    These limitations stem from three aspects of the statute:
    1. the definition of a "qualified education loan"
    2. the nature of the association of the loan with a nonprofit institution
    3. the exclusion for cases involving undue hardship
    To be excepted from discharge, a debtor would either have to show that his or her education loan
    was not a qualified education loan and was not funded by a nonprofit institution or that repaying
    the loan would represent an undue hardship.
    Qualified Education Loans
    BAPCPA amended the US Bankruptcy Code to include "qualified education loans" within the
    scope of the exception to discharge for education loans. Private student loans which are not
    school certified generally do not satisfy the requirements to be considered a qualified education
    loan. One must, however, review the specific circumstances of each loan to determine whether or
    not it satisfies the requirements to be considered a qualified education loan.
    The term "qualified education loan" is defined in 11 USC 523(a)(8)(B) by cross-reference to 26
    USC 221(d)(1), which defines it in terms of other sections of the Internal Revenue Code of 1986
    and the Higher Education Act of 1965, including definitions of "qualified higher education
    expenses", "cost of attendance", "eligible educational institution" and "eligible student".
    There are two major types of private student loans: those that are school certified and those that
    are not school certified.
    School certified loans generally satisfy the requirements of a "qualified education loan" because
    the colleges enforce limits on the amount of debt that are consistent with the restrictions imposed
    by 26 USC 221(d)(l), which in turn references the definition of cost of attendance in section 472
    of the Higher Education Act of 1965 (20 USC 1087ll).
    Private student loans that are not school certified often deliberately circumvent these
    requirements in order to lend money to students beyond the limits permitted by 26 USC
    - 1 - Page 2

    221(d)(1) or for purposes not allowed by 26 USC 221(d)(1). For example, the overaward
    regulations at 34 CFR 673.5 require colleges to treat the amount by which a private student loan
    in combination with other non-need-based loans exceeds the expected family contribution (EFC)
    as a resource, reducing eligibility for need-based aid. (One of the attractions of a non-school-
    certified loan is the ability to borrow more than would otherwise be permitted on a school-
    certified loan. Colleges are only required to adjust for an overaward caused by a private student
    loan if they know about the education loan.)
    Specifically, 34 CFR 673.5(c)(1)(xiii) defines estimated financial assistance as including "any
    educational benefits paid because of enrollment in a postsecondary education institution, or to
    cover postsecondary education expenses", which includes private student loans. The amount of
    estimated financial assistance excludes amounts used to replace the EFC, per 34 CFR
    673.5(c)(2)(iii): "Those amounts used to replace the EFC, including the amounts of any
    unsubsidized Federal Stafford or Direct Loans, Federal PLUS or Federal Direct PLUS Loans,
    and non-federal non-need-based loans, including private, state-sponsored, and institutional
    loans." But amounts of non-need-based loans in excess of the EFC are not excluded from the
    definition of estimated financial assistance, per 34 CFR 673.5(c)(2)(iii): "However, if the sum of
    the loan amounts received that are being used to replace the student's EFC actually exceed the
    EFC, the excess amount must be treated as estimated financial assistance". If estimated financial
    assistance exceeds financial need (which is the difference between the cost of attendance and the
    expected family contribution), the overaward regulations require certain forms of need-based aid
    to be reduced.
    These regulations parallel the definitions and requirements encoded into the Higher Education
    Act of 1965 as specified in sections 471, 480(j), 428(a)(2)(C), 428H(c), 428H(d) and 443(b)(4).
    Section 471 (20 U.S.C. 1087kk) defines financial need as the difference between the cost of
    attendance and the expected family contribution and estimated financial assistance. Most federal
    student aid programs are capped at financial need. Section 480(j)(1) defines estimated financial
    assistance as including education loans:
    For purposes of determining a student's eligibility for funds under this title,
    estimated financial assistance not received under this title shall include all
    scholarships, grants, loans, or other assistance known to the institution at the time
    the determination of the student's need is made, including veterans' education
    benefits as defined in subsection (c), and national service educational awards or
    post-service benefits under title I of the National and Community Service Act of
    1990 (42 U.S.C. 12571 et seq.).
    Although non-school-certified loans generally do not satisfy the requirements to be considered
    qualified education loans, it is important to evaluate whether each individual loan satisfies those
    requirements on a case-by-case basis. An education loan that is not school certified could still be
    a qualified education loan if it did not exceed the limits of a qualified education loan and was not
    disbursed for expenses outside the scope of a qualified education loan.
    Some of the more common ways in which an education loan may fail to satisfy the requirements
    of a qualified education loan include:
    - 2 - Page 3

    1. Use at a college that is not a Title IV institution (i.e., a college that is subject to a program
    participation agreement under 20 USC 1087ll).
    2. Use for costs not included within the definition of cost of attendance or in excess of the
    expected family contribution (or cost of attendance minus aid received).
    3. Use for study abroad not approved for credit by the home institution.
    4. Use for rental or purchase of equipment, materials or supplies that are not required by the
    institution.
    5. Use for purchase of a computer without obtaining an adjustment to cost of attendance
    from the college for the cost of the computer.
    6. Use for a previous year's school charges.
    In order to be considered a "qualified education loan", an education loan must satisfy all of the
    following requirements:
    1. The debt must be incurred "by a debtor who is an individual", per 11 USC 523(a)(8)(B).
    2. The debt must be "incurred solely to pay qualified higher education expenses", per 26
    USC 221(d)(1) by cross-reference from 11 USC 523(a)(8)(B). Mixed used loans, such as
    credit card debt or home equity loans, are not eligible, per example 6 of 26 CFR 1.221-
    1(e)(4). Even education loans are not eligible if they are incurred to pay for expenses
    other than qualified higher education expenses.
    3. The debt must be incurred on behalf of a student who is either the debtor, the debtor's
    spouse, or the debtor's dependent (eligible to be claimed as an exemption on the debtor's
    income tax return, per 26 CFR 1.221-1(b)(2)) at the time the indebtedness was incurred,
    per 26 USC 221(d)(1)(A) by cross-reference from 11 USC 523(a)(8)(B).
    4. The debt must be "paid or incurred within a reasonable period of time before or after the
    indebtedness is incurred", per 26 USC 221(d)(1)(B) by cross-reference from 11 USC
    523(a)(8)(B). The regulations at 26 CFR 1.221-1(e)(3)(ii)(B) provide for a safe harbor of
    90 days before or after the academic period to which the expenses relate. It is possible
    that a longer period of time would still be considered reasonable based on the relevant
    facts and circumstances, per 26 CFR 1.221-1(e)(3)(ii), but use of a loan to pay for a
    previous year's school charges would generally not qualify unless there were extenuating
    circumstances.
    5. The debt must be "attributable to education furnished during a period during which the
    recipient was an eligible student" per 26 USC 221(d)(1)(C) by cross-reference from 11
    USC 523(a)(8)(B). To be an eligible student, the student must be enrolled at least half-
    time in a Title IV institution and be degree-seeking. Study abroad is only eligible to the
    extent that it is approved for credit by the home institution.
    Specifically, eligible student is defined by 26 USC 221(d)(3) by cross-reference to 26
    USC 25A(b)(3), which in turn requires the student to be enrolled on at least a half-time
    basis and to fulfill the requirements of section 484(a)(1) of the Higher Education Act of
    1965 (20 USC 1091(a)(1)). This requires the student to "be enrolled or accepted for
    - 3 - Page 4

    enrollment in a degree, certificate, or other program (including a program of study abroad
    approved for credit by the eligible institution at which such student is enrolled) leading to
    a recognized educational credential at an institution of higher education that is an eligible
    institution in accordance with the provisions of section 1094 of this title, except as
    provided in subsections (b)(3) and (b)(4) of this section, and not be enrolled in an
    elementary or secondary school".
    The definition of qualified higher education expenses in 26 USC 221(d)(2) references 26
    USC 25A(f)(2) for the definition of "eligible educational institution". This ultimately
    requires the institution to be a Title IV institution. So the requirement that the institution
    be a Title IV institution derives both from the definition of "eligible student" and the
    definition of "qualified higher education expenses".
    6. The debt may include any debt used to refinance a qualified education loan, per 26 USC
    221(d)(1) by cross-reference from 11 USC 523(a)(8)(B).
    7. The debt does not need to be a federally-guaranteed loan to qualify, per 26 CFR 1.221-
    1(e)(3)(iv).
    8. The debt may not be owed to a relative or borrowed from a qualified employer plan
    (retirement plan), per 26 USC 221(d)(1) by cross-reference from 11 USC 523(a)(8)(B).
    9. The debt must be used to pay "qualified higher education expenses", per 26 USC
    221(d)(1) by cross-reference from 11 USC 523(a)(8)(B). This term is defined by 26 USC
    221(d)(2) as the "cost of attendance" as defined by section 472 of the Higher Education
    Act of 1965 (20 USC 1087ll) as in effect on August 4, 1997, reduced by educational
    expenses paid certain other programs.
    The intention of these double-dip provisions is to prevent the same education expenses
    from being used to justify benefits under more than one education tax benefit. To the
    extent that the education expenses were paid by another education tax benefit they are not
    attributable to the qualified education debt. The specific reductions mentioned by 26 USC
    221(d)(2) include amounts paid from employer tuition assistance (26 USC 127), US
    Savings Bonds (26 USC 135), qualified tuition programs such as section 529 college
    savings plans and prepaid tuition plans (26 USC 529), Coverdell education savings
    accounts (26 USC 530), and scholarships, veterans education benefits or military student
    aid, and other payments for education expenses or attributable to enrollment in an eligible
    education institution which are excludable from gross income (26 USC 25A(g)(2)). The
    latter includes the tuition & fees deduction (which is an exclusion from income) but not,
    apparently, the Hope Scholarship and Lifetime Learning Tax Credit (which are tax
    credits).
    These definitions require the reduction of cost of attendance by most forms of student
    aid, such as the Pell Grant, education loans and institutional aid. However, there may be a
    little play in the joints between the reductions mentioned by 26 USC 221(d)(2) and the
    definition of estimated financial assistance in section 480(j)(1) of the Higher Education
    Act of 1965, such as Federal Work Study (which is not excluded from gross income). But
    - 4 - Page 5

    for the most part the two definitions are consistent with each other.
    The language in Section 472 of the Higher Education Act of 1965 (20 USC 1087ll)
    requires cost of attendance to be "determined by the institution". While this doesn't
    specifically require the education loan to be school certified, since the lender could
    determine the cost of attendance from the institution's published student budget, any
    amounts beyond the amounts in the student budget must be approved by the school in
    advance. For example, while Section 472(2) of the Higher Education Act permits a
    computer to be included in cost of attendance, the "as determined by the institution"
    language provides the institution with the authority to determine whether or not the cost
    of a computer is included in the cost of attendance. Most colleges do not include the cost
    of a computer in the standard student budget, but instead have an appeals process for
    adjusting the cost of attendance to include the actual cost of a computer subject to certain
    limits, such as a reasonable cap on the cost and no more than one computer per
    undergraduate career. If an education loan was incurred to pay for a computer without
    the college approving an increase in the cost of attendance corresponding to the cost of
    the computer, the loan is not a qualified education loan. Likewise, if an education loan is
    incurred for purposes not permitted by the cost of attendance, it is not a qualified
    education loan. For example, equipment must be required by the institution to be
    considered part of the cost of attendance under section 472(1) of the Higher Education
    Act of 1965. If an education loan is incurred to purchase a cell phone, iPod, calculator,
    camera, PDA or other equipment that is not "required of all students in the same course
    of study", the loan is not a qualified education loan. Similarly, although section 472(2) of
    the Higher Education Act of 1965 includes "transportation" within the definition of cost
    of attendance, this does not permit the purchase of an automobile or motorcycle. The
    specific language is for "an allowance for ... transportation ... as determined by the
    institution".
    Thus an education loan which exceeds the remaining cost of attendance (after reducing it
    by other aid received and expenses paid with funds from certain education tax benefits)
    would not be considered a qualified education loan.
    If an education loan fails to satisfy any of these requirements, it is not considered a qualified
    education loan within the meaning of 11 USC 523(a)(8) and hence may be subject to discharge
    in a bankruptcy proceeding.
    Association with a Nonprofit Institution
    11 USC 523(a)(8)(A)(i) excepts from discharge any education loan "made under any program
    funded in whole or in part" by a nonprofit institution. This exception is limited to loans funded
    by the nonprofit institution. Loans guaranteed by a nonprofit institution are not excepted from
    discharge by virtue of the nonprofit nature of the institution (but might be excepted from
    discharge as a qualified education loan under 11 USC 523(a)(8)(B)). This becomes clear when
    one examines the full context of the language in 11 USC 523(a)(8)(A)(i), which has two clauses:
    an educational benefit overpayment or loan made, insured, or guaranteed by a
    governmental unit,
    - 5 - Page 6

    or made under any program funded in whole or in part by a governmental unit or
    nonprofit institution
    The first clause excepts from discharge any loan made, insured or guaranteed by a government
    unit (including the federal government and state agencies), regardless of the source of funds. The
    second clause does not include parallel language for "insured or guaranteed", but rather just
    language concerning the funding of the loans. This is a clear indication that Congress did not
    intend to except from discharge loans that were guaranteed by a nonprofit institution, but rather
    just those funded by a nonprofit institution.
    Thus a private student loan that is funded by a nonprofit institution is excepted from discharge,
    but not a private student loan that is guaranteed or insured by a nonprofit institution.
    A recent bankruptcy case in Massachusetts, Taratuska v. TERI (Chapter 7 Case 01-10361-RS,
    Adversary Proceeding 05-1653, August 16, 2007) used similar reasoning to find that a private
    student loan guaranteed by TERI was not excepted from discharge. The judge’s decision
    involved several nuances:
    Although the statute requires the program to be funded by the nonprofit institution and
    not the loan, the judge concluded that funding a program means “advancing funds for a
    loan or loans under that program”. The judge rejected the contention that guaranteeing a
    loan constitutes funding the program, in part because a guarantee does not mean
    advancing funding but rather only payment upon a possible future default.
    The judge made the same argument regarding the terminology used in the two clauses,
    finding “Notably, the statute employs both terms, plainly indicating that they have
    different meanings; otherwise, one or the other would be unnecessary.”
    Marketing of a loan program by a nonprofit institution does not constitute funding that
    program or making of loans under that program.
    Commingling of nonprofit and commercial student loans in a single program appellation
    without regard for the different attributes of the loans does not constitute a program
    funded by a nonprofit institution because it unfairly “converts dischargeable commercial
    student loans into non-dischargeable commercial student loans” solely as a consequence
    of the classification system and “for reasons having little to do with the loan itself”. The
    judge’s decision would require separate discrete classifications for nonprofit and
    commercial student loans. (This is the weakest aspect of the judge’s decision. One could
    argue that lumping together multiple distinct loan types into a single loan program is
    consistent with the statutory language that focuses on funding of a loan program as
    opposed to funding of a loan. However, a loan program should exhibit a degree of
    cohesiveness as is exhibited by the Stafford Loan Program or the PLUS Loan Program It
    is worth noting that this clause was most likely intended to except Perkins Loans
    (formerly, National Direct Student Loan Program) from discharge and not private student
    loans.)
    - 6 - Page 7

    Undue Hardship
    11 USC 523(a)(8) allows any education loan to be subject to discharge if excepting such debt
    from discharge "would impose an undue hardship on the debtor and the debtor's dependents".
    Most court cases cite Brunner v. New York State Higher Education Services Corp. [October 14,
    1987, #41, Docket 87-5013] for a definition of "undue hardship". That decision adopted the
    following three-part standard for undue hardship:
    1. That the debtor cannot both repay the student loan and maintain a minimal standard of
    living.
    2. That this situation is likely to persist for a significant portion of the repayment period of
    the student loans.
    3. That the debtor has made good faith efforts to repay the loans.
    In practice the first element usually involves evaluating what the monthly payment would be
    under the Income Contingent Repayment plan. This repayment plan uses two caps on the
    monthly payment, one based on the poverty line and one based on income percentage factors.
    The first cap is 20% of the amount by which income exceeds 100% of the poverty line for the
    family size. The second cap is the amount of the monthly payment for 12-year level repayment
    multiplied by an income percentage factor that ranges from 50% to 200% depending on income.
    For most bankruptcy cases the first cap is the most salient. There is also a $5 minimum monthly
    payment. If repaying the education loans under the income contingent repayment plan precludes
    the debtor from maintaining a minimal standard of living, the education debt is potentially
    subject to discharge, assuming that the other two elements of Brunner v. NY HESC apply. In
    some cases courts have selectively discharged education loans until the total remaining fell under
    the threshold established by the first element.
    However, Section 418 of BAPCPA established fee waiver provisions for a chapter 7 filing when
    the individual debtor has income less than 150 percent of the poverty line for the family size and
    is unable to pay the fee in installments. This could potentially lead to a situation in which a
    debtor qualifies for a bankruptcy fee waiver yet has education loans not dischargable under an
    undue hardship petition if the debtor's income is greater than 100% of the poverty line but less
    than 150% of the poverty line.
    One could argue that both standards should apply when determining whether a debtor cannot
    repay the student loans and still maintain a minimal standard of living. Specifically, if the
    debtor's income falls below 150% of the poverty line, the education debt should be subject to
    discharge, and if the debtor's income is greater than or equal to 150% of the poverty line, then
    the standard established by income contingent repayment should apply with regard to the amount
    of debt.
    In fact, the 110th Congress has recognized this flaw and passed legislation to establish a new
    Income-Based Repayment plan with a new cap on monthly payments based on 15% of the
    amount by which adjusted gross income exceeds 150% of the poverty line for the family size
    (H.R. 2669). The legislation has passed both the House and Senate, and is currently in
    - 7 - Page 8

    conference. The House legislation, the College Cost Reduction Act of 2007, would establish
    income-based repayment in addition to income-contingent repayment, while the Senate
    legislation, the Higher Education Access Act of 2007, would replace income-contingent
    repayment with income-based repayment.
    The second element usually requires the debtor to demonstrate exceptional circumstances that
    will preclude repaying the debt for most of the repayment term, such as a disability. An inability
    to work in one's chosen profession is not sufficient, if it does not preclude being able to work in
    another field.
    The third element usually involves examining whether the borrower made an attempt to repay
    the debt and whether the borrower tried using forbearances and the economic hardship deferment
    before defaulting on the debt.
    Pending Legislation
    Legislation introduced by Senator Richard Durbin (S.1561) would roll back the changes
    introduced by BAPCPA by striking the exception for qualified education loans. It would also
    repeal the exception for loans funded by nonprofit institutions.
    Legislation introduced by Senator Hillary Clinton (S. 511), the Student Borrower Bill of Rights
    Act of 2007, would restore the pre-1998 language which allowed for a discharge of education
    loans after seven years in repayment.
    - 8 - Page 9

    Comment


      #3

      Comment


        #4
        Submitted by John (not verified) on June 20, 2008.
        The Taratuska decision is currenty under appeal in the US District Court in MA. While the bankruptcy court's decision is positive, we need to see what happens on appeal. TERI had to request permission from the court in its own Chapt. 11 case to appeal the decision that was favorable to the student debtor. That permission was granted. If the District Court agrees with the debtor, you can bet TERI will head for the court of appeals. i think the reasoning in the decision was correct as is Mr. Kantrowitz's in his paper, but it is a bit suspect to represent this as if it is settled law. You can try to argue to that your loan was discharged, but don't be surprised if you have to litigate it. Good Luck!

        from

        Comment


          #5
          Submitted by John (not verified) on July 6, 2008.

          To track the progress of the case, you need to sign up for an account with Pacer, which is the federal judiciary's case management system. Once you have an account, which is free, you can search for the Taratuska civil case. I am not surprised your lawyer is not taking this case seriously and trying to apply it to your situation. There are probably hundreds if not thousands more like you that the Taratuska case--if upheld--could help. Unfortunately, when bankruptcy lawyers, even experienced ones, hear "student loan," their default response is "they are never dischargeable." You need to find a really special attorney who is willing to devote his time for little money and those are hard to come by. Ms Taratuska was fortunate to have someone who didn't just go with the conventional wisdom, but thought critically and seriously about the law and how it applied to her case. In fact, this is part of Mr. Hupp's challenge to the constitutionality of the bankruptcy code's prohibition against the discharge of student loans expcept under "undue hardship." Hupp argues that in order to prove "undue hardship" you must pay tens of thousands of dollars in attorney's fees, such that anyone who is truly experiencing undue hardship cannot afford the cost of the adversarial proceeding the code requires.

          Don't be surprised if your lawyer continues to give you the cold shoulder, few want to get involved with this type of litigation, probably becuase they realize you cannot afford their fees to press the issue. This is why I remain gloomy about the courts being a real avenue for relief for student debtors. Even if the Taratuska case is upheld on appeal (which is going to take a while), it may not be binding precedent outside of that circuit and anyone wanting to use it to argue their private loans were dischareged in another circuit will probably have to relitigate the case. In other words, pay tens of thousands of dollars in legal fees. If the case is upheld on appeal that is a tremendous positive, but it will not necessarily obviate the need for further litigation in other circuits. Something Mr. Kantrowitz fails to mention in his paper.

          Comment


            #6
            Caveat: This is not meant as legal advice for your situation (or any other), but here are some ideas to consider in conjuction with your attorney: Some private lenders do offer deferments, you can try to work somthing out with them, but in many cases they will not budge. There are some lenders who also offer private loan consolidations, but the interest rates there might not be much better than what you have (although you may be able to stretch the payments out). However, if you are on the verge of bankruptcy already you probably won't qualify w/o a co-signer.

            I don't know how much money you make and how much debt you have, or if you are contemplating Chpt 7 or Chpt 13; but you may want to talk to your attorney about considering a Chapt. 13 (even if you are eligible for a 7). You can include student loans in a Chpt. 13 plan, although that part that of the loans that have not been paid through the plan will not be discharged at the conclusion of the plan. However, perhaps your attorney can come up with a monthly payment plan through the 13 that is more reasonable than what you would have pay the creditors directly and buy you some time to develop your earning potential? The problem with this is interest will accumulate and you will possbily emerge from the Chpt 13 with more debt than you went in with. However, if we are lucky perhaps the law will be different in 5 years? Even if it isn't, and your life situation hasn't changed, you can probably just file another 13.

            If your attorney is recommending an adversary proceeding, you really want to make sure they know what they are doing. Paying 5 to 10 grand in legal fees for a hail mary pass probably won't sit very well, if you realize after the fact your attorney had no idea what they were doing. Ask them how common these procedings are in your circuit, how often do they succeed? What are the benchmark cases on student loan dischargeability in your circuit? Find out, read them over and ask if your circumstances justify the expense. Also, you do not say whether your attorney is recommending pursuing a discharge under the "undue hardship" provision or is he/she recommending an adversary proceeding for some other reason (suchs as challenging the discharge status of the private loans)? You may want to ask your attorney if part of the fee for the adversary can be paid through the Chpt. 13 plan, if you decide to go that route.

            Unfortunately, there just are not many legal options at all right now. When I spoke of considering other options above, I was referring to developing a lifestyle plan that takes this debt into account. In other words, prepare for austerity and talk to your relatives about developing a plan to protect any assets they may want to "designate for your benefit" in the future. Some people try to"live off the grid," but that is not very appealing to many who were sold the promise of a bright future through education. Part of dealing with the debt is to reconsider our priorities and adjust our life expectations all the while dealing with the emotions that arise from being a student debtor, i.e. tried to improve yourself, only to find out you did the opposite. Of course part of coming to grips with this emotionally is reconsidering what higher education is and should be about: a route to a high earning job, personal intellectual growth? What did it mean for you?

            One of our biggest problems right now is that the student loan problem has almost zero visibility. Everyone is focused on the subprime crisis and gas prices because they are more immediate, while the student loan crisis materializes slowly over the course of a 4 to 10 year education. Unfortunately, too many student loan debtors are too ashamed to speak up, thinking their problems result from "bad personal choices" rather than a real socio-economic crisis in our approach to higher education and a particularly irrational bankruptcy code when it comes to student loans. We can use the legal system as individuals to gain some temporary relief from our debt in some situations, but correcting the real problem is going to require some collective action to force our political leaders to change the law and develop a more progressive and rational social policy when it comes to higher education. Oddly, the worsening economy may be our best ally, as it might bring this problem into the open and force our leaders to address it. My high school History teacher used to say that it is worse to be poor when everyone else is doing well, because your problems will not be noticed. But we still need to figure out how we as a group with shared interests can push reform forward.

            One thing I would caution everyone about: Do not reveal too many personal details about your particular case over the Internet in a way that could lead you to be identified by one of you creditors. Don't think for a second they are not reading these boards and what you say can and will be used against you in court if it comes to that.

            Comment

            bottom Ad Widget

            Collapse
            Working...
            X