Americans who have become used to using credit cards as a stop-gap measure to survive pay-cuts might not be able to rely  on this method since nearly 50 million Americans just had their credit card limits cut.

For centuries, companies have used bankruptcy as a tool to survive, reorganize or to shut-down. Several airlines have filed bankruptcy over the past three decades, primarily to break contracts and modify pensions.

With tax season upon us, some student loan borrowers are shocked to find out that their student loan servicers can intercept their tax refunds in order to pay delinquent student loan debt.

While Americans can file bankruptcy to get relief from most types of debts, student loans are among the types of debts that a debtor may not discharge in bankruptcy unless paying them back would be an “undue hardship”  on the debtor. (This standard is extremely hard to meet and in one older case from Jacksonville, even a lawyer who said an auto accident left her disabled, failed to meet the high standard). In order to address this issue, the U.S. Bankruptcy Court for the Middle District of Florida (Jacksonville, Orlando, Tampa and Ft. Myers) recently instituted a “Student Loan Management Program” (Program).

The federal student loan program was initially created with the goal of making a college education affordable for all children. Originally student loans were only meant to help fill the bridge between grant money and the cost of tuition, books, and housing. In other words, student loans were only supposed to supplement education costs. Student loans were never meant to completely cover the full costs of receiving a higher education.

Instead of being based on your creditworthiness like most other types of debts, student loans are only based on your need. Due to this need v. creditworthiness approach, Congress did not feel that student loans should be dischargeable through bankruptcy except under very extreme circumstances that are completely out of your control. Specifically, Congress did not want to put the burden of unpaid student loans onto the taxpayers.

Nonetheless, there were put into place a couple of programs for those facing a partial financial hardship. The first program was the William Ford Foundation, which provided an income contingent repayment plan. This program is available for those who choose to take lower paying jobs such as in public service. There is also the Income Based Repayment Program. With this program, your payments are based on your income. After 20 years, the amount still owed is discharged; however, there are still huge limitations on how you can qualify to remain in this program.

Of course, things did not go the way Congress had intended. Federal government spending on higher education could not and cannot keep up with the ever-increasing costs of earning a college degree. Federal grant programs failed to cover the entire costs and, as a result, students began looking to borrow money from other sources (privately funded student loans) once they had exhausted the federal government-insured student loans. This left college graduates with very high student loans to pay back.

In the Middle District of Florida where I practice, and encompasses the Jacksonville and Orlando divisions, an all or nothing approach has been taken towards the dischargeability of student loans. You either qualify 100% for your student loans to be discharged because of an extreme circumstance, which has a very high level of proof, or you do not. There is no middle ground.

However, Representative John Delaney introduced bipartisan legislation last Friday that would make student loan debt dischargeable through bankruptcy. So everything might be changing in 2017! The bill has been named the Discharge Student Loans in Bankruptcy Act (H.R. 2366).

In 2016, according to the Federal Reserve Bank of New York, the amount of student loan debt reached an all-time high of $1.3 trillion dollars.

At the Law Office of David M. Goldman, PLLC, we are always looking at creative methods to help our clients deal with their overwhelming debt burden. Contact our office today for a free initial consultation at (904) 685-1200. There are a lot of options available. The trick is finding the one that best fits you and your life. We are here to help you put your financial health back on track.

May 5, 1999, a day to be remembered. Why you ask? Well that was the day that Congress debated for three minutes and passed an amendment, offered by then Congressman and now Senator Lindsay Graham, which made privately-funded student loans non-dischargeable under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Continue reading to find out why there may be a possiblity to discharge your Student Loans in Bankruptcy

Student loans comprise the greatest amount of consumer debt in the United States, recently surpassing credit card debt. With the most recent recession and a stagnant job market, college graduates are suffering from the burden of overwhelming monthly loan payments on their staggering student loan debt.

HISTORY
The federal government meant well when it created student loan programs. The goal was to afford every child an opportunity to attend college. The loans were created to bridge the gap between student grant monies and the cost(s) of tuition, books and board.

PROBLEM
Student loans were created to supplement a student’s educational costs. The loans were based on “need” rather than “creditworthiness.” As a result, Congress felt student loans should not be discharged in a bankruptcy, except under extreme circumstances.

Congress in the late 1970’s did not want the taxpayers saddled with the loss if a student defaulted on his/her student loan. For those experiencing a “partial financial hardship,” the William Ford Foundation provided support in the form of the Income Contingent Repayment Program (ICRP) and the newer Income Based Repayment Program (IBR).

Both programs involve making a payment on the loans based not on the amount of the loans, but instead on the percentage (%) of the graduate’s income. After a period of twenty (20) years, the amount of debt still owed would be “discharged” and no further payments would be required.

However, things did not go as planned. Federal government spending on higher education failed to keep up with the spiraling cost(s) of a college degree. Federal grant programs failed to cover the entire costs. As a result, students had to meet the rising costs by taking out a higher percentage of student loans. When federal government-insured student loans were exhausted, students had to borrow greater and greater amounts of privately-funded student loans.

THE PRIVATELY FUNDED STUDENT LOAN
Privately-funded student loans have a somewhat different structure. Whereas a government-insured loan might have a low interest rate, privately-funded student loans are usually higher in the rate of interest, a curb on the risk of student default. Most government-insured loans do not involve a co-borrower in the form of a parent, relative, or spouse. Privately-funded student loans commonly involve non-student third-parties who guarantee the debt in the event of student default. Both are common methods used by these lenders to reduce their risk and increase their profits. But does that not change the structure of the loan from one based on “need” to one based on “creditworthiness?” If I can charge more interest and involve guarantors, am I not using vehicles normally found associated with “creditworthiness.” I think so. Therefore, should these loans be afforded the same protections of the government-insured loan,

WHAT HAPPENS IF A STUDENT CAN NOT AFFORD TO REPAY HIS PRIVATELY-FUNDED STUDENT LOAN?
If a student were to find him/herself unemployed, underemployed, or malemployed (working out of his/her field of study), would he/she be afforded the same remedies available to student loan borrowers suffering a “partial financial hardship” of their privately-funded student loans as those suffering a “partial financial hardship” of their government-insured student loans? NO WAY! Privately-funded lenders offer little to no programs to assist borrowers who suffer a “partial financial hardship.” While extreme hardships are dischargeable in a bankruptcy just like the government-insured loans, what does a person who doesn’t qualify for a “hardship discharge” do?

CONGRESS’ INTENT
Congress intended the taxpayer to be protected from loss, not the lender. If you want to reduce your risk, by all means charge a higher interest rate, and incorporate a co-borrower. But do not expect to have your loan protected from discharge in the same regard.

BANKRUPTCY PROTECTION – ALL OR NONE
Currently, bankruptcy case law in the Middle District of Florida (comprising the Jacksonville and Orlando Divisions), operates from an all-or-none principle. You either qualify for a 100% hardship discharge of your student loans, or you qualify for a 0% discharge of your student loans, an extremely high standard with no middle ground.

While student loan debt may be non-dischargeable, there are ways to use bankruptcy to protect yourself and ease the total debt burden. Because student loans are unsecured debts, they are not allowed to be paid while in a Chapter 13 Bankruptcy unless you are paying the total unsecured debt 100%, which is quite rare. Chapter 13 cases last a minimum of thirty-six (36) to sixty (60) months, so the pragmatic reality is you might not be allowed to pay the student loans during the entire Chapter 13 case. As a result, you get a three (3) to five (5) year opportunity to get back on your feet while you are in the Chapter 13 reorganization.

Law Office of David M. Goldman is currently developing other methods to combat the burden of overwhelming student loan debt. Contact us today to speak further about these options.

Rule 11 U.S.C. 523 (8) governs the discharging of student loans in bankruptcy cases. In summary, it requires that an undue hardship to the debtor or their dependent would occur were the loan(s) not discharged.

Judges have had fun in deciding what an “undue hardship” is, but have basically boiled it down to the following: An undue hardship occurs if a debtor can show that they (1) cannot maintain, based on current income and expenses, a “minimal” standard of living for themselves and their dependents if forced to repay the loans, (2) additional circumstances exist indicating that the debtor’s financial situation is likely to persist for a significant portion of the repayment period for the student loans, and (3) they have made good faith efforts to repay the loans. As each of these three prongs must be proven to discharge the debt, this is a hefty standard. This has been made especially difficult since the passage of the 2007 “College Cost Reduction Access Act“, which created the Income Based Repayment plan. Income Based Repayment reduces Federal Student Loan payments to 15% of the difference between the debtor’s gross income and 150% of the poverty line. Without forcing you to do complicated mathematics, I will say that it makes student loan payments very manageable. As a result, hardships are impossible to prove if the loans can qualify for the Income Based Repayment option. Income Based Repayment allows you to pay a fraction of your income for ten to twenty-five years depending on the type of employment you have. At the end of the repayment period, the U.S. Government discharges your remaining debt, i.e. pays your loan.

These loans wouldn’t be a problem if the income from the jobs that followed the loans was sufficient to pay the debts. The problem graduates are facing is that those jobs either don’t pay enough to make the monthly loan payments or the jobs don’t exist at all.

Fortunately, for those with federal loans there are programs like Income Based Repayment. Income Based Repayment or IBR, allows graduates in the private sector to pay a monthly payment based on a percentage of their gross income. After 25 years of payments, the remaining debt is discharged. Some people feel that this is unfair because those people signed into those debts with knowledge of the interest rates. There is truth in that, however most, if not all of those students did not anticipate the economic collapse of 2007.

To see if your loans qualify for discharge, contact a Jacksonville Bankruptcy Attorney today to discuss your situation.

Generally, student loan debt is nondischargeable unless the debtor can prove he or she would suffer an “undue hardship”. Whether or not you are suffering an undue hardship is up for the court to decide, but it’s important to realize that this is a relatively high standard to show. Courts often look at whether you made a diligent effort to pay the debt, find a good paying job, and reduce your living expenses. In actual practice, almost the only way that you are going to get your student loans discharged through bankruptcy is if you are permanently disabled, with no opportunity or ability to get a job to repay your student loans.

If you are in debt and are thinking of filing bankruptcy, contact a Jacksonville Bankruptcy Attorney to discuss what debts can ben discharged and whether filing is right for you.

The short answer: no. The obvious point is that student loans are much different than home loans, in that the market for the products (i.e., a home vs. your degree) is much different. Despite this, some people think that ceasing payments on a student loan will prompt the lender (generally the Government) to negotiate a settlement. This is rarely — if ever — a wise choice.

Interest on your loan continues to accrue even if you have stopped paying. After a few years, this interest can amount to thousands of dollars in fees that you might not otherwise have accumulated. Further, even if the government decides to settle with you for a smaller amount, that amount will likely be somewhere around 90% of what you originally owed. Since you’ve accumulated that additional interest, that settlement might not be less at all.

If you have questions about whether your situation might warrant a student loan debt discharge, contact a Florida bankruptcy attorney to discuss your case.