Even with a budget and careful spending, most people at some time in their lives will end up needing a loan. It may be to buy a home, pay for school, expand a business, or restructure their debt. The larger the loan, the more intimidating the process, although even credit card applications are a form of a small loan.
The easy availability of credit cards, consumer loans, and easy payment plans has made consumer debt one of the most serious financial threats facing Americans today. College students are among the most vulnerable targets for credit card recruiters who make it sound like they are offering free money. But that free money must be repaid with interest.
Student loan debt is a major problem facing many Americans. Many of us tend to believe that a student loan is just like any other loan. The bitter truth is – It’s Not. You can get rid of most loan debts. They can be discharged in bankruptcy. They cannot be collected once the statute of limitation for that debt has expired. A student loan debt cannot be discharged in bankruptcy. There is no statute of limitation on student debt collection. If you are unable to pay of your debts including student loan debts, speak to an experienced Midway Utah bankruptcy lawyer. The lawyer will explain your options and help you get some relief. In some cases, you may be able to discharge the whole or a portion of a student loan debt.
Financial Problems During Repayment, and Options
At one point or another during student loan repayment, many if not most borrowers will face periods of unemployment and other financial difficulties that limit their ability to make their scheduled loan payments. Congress mandates that forbearances or deferments be made available to the borrowers during these times. While an experienced Midway Utah bankruptcy lawyer cannot get you forbearance or deferment, he will be able to guide you through the process and if you don’t succeed, he can assist you with your bankruptcy filing.
There are at least some provisions in federal law for the cancellation of federally guaranteed student loan debt, and it is important for the borrowers to be aware of this. A provision applies if the borrower becomes totally and permanently disabled. This requires an approved doctor’s certification of the total and permanent disability. Often, the loan holder will use his or her own doctor to provide a second opinion, and this is the cause of frequent disputes. Disability discharge is rarely granted, since the “total and permanent” caveat means exactly that. A short term disability is insufficient. Many borrowers who have been granted disability benefits are rudely surprised when they find that their disability income is being garnished.
There is also a provision for loan cancellation under the “ability to benefit” clause. Examples of this given by the U.S. Department of Education include a school admitting a student who did not satisfy the application requirements for ability to benefit from the training, such as if the student did not possess a high school diploma or GED and had not taken an ATB test. Another example is if a school signed the student’s name without that student’s authorization on the loan application or promissory note. This provision also allows cancellation if the borrower had a physical, mental, or legal status or condition at the time of enrollment that would legally bar employment in their field of study. Finally, this provision provides for loan cancellation if the student was the victim of identity theft.
School closure is also an important and legitimate basis for loan cancellation. The students attending a school that has shut down would have been granted loan cancellation had their loans been federally guaranteed. One note of caution here: schools that close will often graduate students just prior to closing so that they are able to say that they fulfilled their duty to the student.
One Approach for Avoiding Default
If a borrower is unable to work with a loan holder to convince the company to approve the deferment or forbearance application, there is one method for ensuring that the loan does not default. According to the Higher Education Act of 1965 (HEA), a loan is not considered to be in default unless no payment has been made on the loan for 270 days. Thus, if a borrower makes any payment—even for an insignificant amount—on the loan at least every 269 days, then legally the loan cannot be in default. While this method can and does indeed work, as borrowers have reported, it does not prevent interest from accruing on the loan, and it does not prevent other fees (for example, late fees) from being attached to the debt. However, borrowers should be aware of this information, and in the event that a loan is bordering on default and the lender refuses to grant the deferments or forbearance that is required, a nominal payment—sent by registered mail—may be the only option to avoid default.
Borrowers who are being hounded by collection companies need to be aware of these potential violations and document them if necessary. All defaulted borrowers interested in protecting their rights should consider acquiring phone recording equipment, which is relatively inexpensive. This is, of course, most effective in states where recorded evidence is admissible in a court of law. If the borrower does not live in a state in which phone recordings are admissible in court, then the borrower does need to announce that the call may be recorded. There are subtle methods for making this announcement that are left to the reader to determine. If none of this is possible, then, at the very least, borrowers should keep an active log of phone calls, notations regarding what was said, and the names that the callers used to identify themselves.
Avoid Dealing with Guarantors and Third-Party Collection Companies
There are many middlemen associated with defaulted federal student loans. First, there is the lender who originates the loan. Then there is the guarantor who (supposedly) guarantees the loan against default. Next there are collection companies that the guarantor uses to collect on the defaulted loan. Finally, there is the U.S. Department of Education (or the Department of Health and Human Services for HEAL loans), the organizations that actually provide the guaranty for the loan when it defaults.
All of these entities combine to present a confusing, intimidating, and, ultimately, expensive front that the borrower must contend with.
Most defaulted borrowers resign themselves to dealing with the guarantors and their collection companies. Regardless of the circumstances of default, there is typically no negotiating with the guarantor or the collection company. The borrower is forced, through rehabilitation, wage garnishment, or other mechanisms, to ultimately repay a much larger amount than the originally defaulted loan. Borrowers can and do exert significant time and effort attempting to deal with ombudsmen who work for the guarantors, and this effort is almost always wasted.
If a borrower is unwilling or unable to comply with the demands put upon him by the guarantor, there is another option that is used occasionally. The borrower can demand that the loans be transferred directly to the true guarantor of the loan, the U.S. Department of Education. By making this demand, the borrower can at least get the loan out of the hands of the state guarantor agency and perhaps be able to negotiate a more favorable outcome.
Many people consider bankruptcy filing as the last resort. Bankruptcy filing will get rid of most debts. However, student loan debts have a special place in bankruptcy. While it is extremely difficult to discharge student loan debt in bankruptcy proceedings, there are circumstances under which it can be done. In general, the bankruptcy courts use a three-prong test to determine whether a student loan debt is eligible for discharge. One test is the answer to this question: Would the borrower be able to maintain a minimal standard of living if forced to repay the loan? This test often uses the monthly payments that would be made under the income-contingent repayment program. The second test requires that there be evidence that the hardship is likely to continue for a significant portion of the loan-repayment period. The third test is whether or not the borrower made good-faith efforts to repay the loan before he or she filed for bankruptcy (usually this means that the borrower has been in repayment for some time). For most borrowers who have at least basic means, such as the ability to work, student loan debt is not dischargeable in bankruptcy. Consult with an experienced Midway Utah bankruptcy lawyer to know if your student loan debt can be discharged by bankruptcy. Chances are it may be.
Portions of Private Loans May Be Dischargeable in Bankruptcy
As a practical matter, people who obtained private loans well beyond their means to repay should realize that under the new federal bankruptcy code, although private loans were reclassified and are treated in the same manner as federally guaranteed loans, there is a caveat: As defined by the new legislation, the portion of the private loan that is largely exempt from bankruptcy protections is only that portion that was used to pay for the cost of attendance at the university. This includes tuition, room and board, and school supplies such as books, papers, and other expenses directly related to attending college. Other expenses do not qualify by the IRS definition, and thus cannot be considered a “qualified education loan.” In layman’s terms: If you took out a private loan and used the money for anything other than the cost of attendance of the college, then by law, this amount should be treated like any other type of debt for the purposes of inclusion in bankruptcy proceedings and be fully dischargeable according to current bankruptcy laws. However, be warned that your private student loan company will fight it out in the bankruptcy court. They will claim that it’s a student loan and that you have used it for cost of attending college. That’s another reason why you should not file your bankruptcy petition without the assistance of an experienced Midway Utah bankruptcy lawyer. Your bankruptcy lawyer knows how to deal with such private student loan companies in the bankruptcy court and help you discharge such loans.
Seek the assistance of an expert – an experienced Midway Utah bankruptcy lawyer.
There are different types of student loans. Some of these loans may be dischargeable in bankruptcy. Speak to an experienced Midway Utah bankruptcy lawyer.
You can discharge most debts by filing for bankruptcy. However, some debts besides a student loan debt also survive bankruptcy. These include child support payments, tax debts and other court ordered payments. Speak to an experienced Midway Utah bankruptcy lawyer to know which of your debts can be discharged in bankruptcy.
Once you file a bankruptcy petition, an automatic stay comes into operation. There is no need to obtain an order for the automatic stay. It comes into operation the moment you file you file bankruptcy petition. Once this automatic stay comes into operation, your creditors and debt collectors cannot contact you. You will be relieved from their calls. You will have peace of mind. If they call or contact you, direct them to your experienced Midway Utah bankruptcy lawyer. The lawyer will deal with them and ensure that they pay for violating the automatic stay.
Before you file for bankruptcy under any chapter, speak to an experienced Midway Utah bankruptcy lawyer to understand how bankruptcy can affect your credit score. Bankruptcy generally has an adverse impact on your credit score. It will remain on your credit for 10 years in the case of a Chapter 7 bankruptcy and for 7 years if you filed a Chapter 13 bankruptcy. But there are steps you can take to improve your credit score once you receive a bankruptcy discharge. An experienced Midway Utah bankruptcy lawyer can advise you on how you can improve your credit score after bankruptcy.
Midway Utah Bankruptcy Attorney Free Consultation
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506