Student loans and bankruptcy

PLUS loans

Loans for parents, professional students, and graduate students. Repayment begins 60 days after loan is disbursed but graduate students can defer this payment while in school. PLUS loans do not have a dollar amount limit but can be denied based on borrowers credit.

Perkins loans

made directly from the school you attend. If you stop paying the school the loan will be turned over to the U.S. department of education. They generally have a lower interest rate and are only available for those with high financial need.

Forebearance

means that you do not have to pay for a period of time and no adverse action will be taken against you for not paying. One can be granted forbearance for health/personal problems, if the loan exceeds 20% of income

Stafford loans

these are federal loans that can be subsidized or unsubsidized. Subsidized loans are distributed based on financial needs and interest is not charged until repayment begins. Unsubsidized loans are not based on financial need and charge interest as soon as loan is disbursed.

Consequences of student loan default

• Denial of new student loans • Negative affect to credit report • Aggressive collection agency contacts • Collection fees • Tax refund intercepts • Wage garnishment • Federal benefit offsets • Lawsuits • Professional license revocations

Student loan cancellation qualifications

• Serious problems with the school you attended • Disability • Death cancellation • Direct loan public service cancellation • Teacher and civil legal assistance attorney cancellation • Perkins loans cancellation (p. 387) • Cancellation after a period of repayment • Bankruptcy

What BK cannot do

- Eliminate certain right of secured creditors. Usually cannot keep the collateral unless you continue to pay the debt. - Does not include child support, alimony, student loans, restitution orders, criminal fines, and taxes - Protect all cosigners on their debts. They may still be obligated to repay the debt. - Cannot discharge debts incurred after BK has been filed.

How BK can help an individiual

- The automatic stay of foreclosures, evictions, repossessions, utility shut-offs, and other creditor actions - Discharges most debts - Can protect against wage garnishment and enforcement of judgement liens - Added flexibility in dealing with secured creditors - Can stop termination and restore terminated utility service for twenty days - To keep or regain driver's license from an unpaid judgement arising from an automobile accident.

Consolidation loans

A government program that allows borrowers to combine multiple loans into a new loan that has hopefully, better terms.

Automatic stay

Once you file for BK, it will automatically stop with no further legal proceedings credit actions against you and your property. It will prevent the start or continuation of repossessions, garnishments, attachments, utility shut-offs, foreclosures, evictions, and debt collection harassment. Allows you time to sort things out and address your financial problems.

How often can one file BK?

One discharge under Ch. 7 every eight years. Can file Ch. 13 four years after a Ch. 7 and two years after a Ch. 13.

Pros and cons of consolidation

Pros • Can extend the repayment term but this would increase the total amount to be repaid. • Could get an interest rate break if loan was before 2006 • Simplifies multiple payments into one • It is an effective way to get out of default Cons • Interest rates are fixed so not as much of an advantage to consolidate for interest purposes • Cannot consolidate while in school • Could lose legal or defense rights • May not be worth it if you are close to paying off

Means test

This test was added to BK law to make it more difficult for wealthy individuals to file a ch. 7 BK. You are not required to take the test if your income is below the median family income in your state, called "safe harbor." If income is above the median family income, then you must fill out a form that compares the consumer's monthly income with actual and assumed expenses in a variety of categories.

Deferment

a way for borrowers to delay repaying the loan for one year or longer. The government makes interest payments of the borrower during repayment if the loan is subsidized. You can defer if you study at least half-time, graduate fellowship, rehab training programs, unemployment, economic hardship, military service, post-active duty.