As you may have heard, millions of Americans are filing bankruptcy forms to discharge their outstanding debts once and for all. They're filling out application forms to end harassing creditor calls, stop foreclosure on their homes, halt repossession of their cars and get rid of medical bills or credit card debts they can never possibly pay off given their current economic situation. However, not all debts are included under the seemingly all-encompassing bankruptcy. For instance, there is little bankruptcy student loan protection, which is the reason why thousands of Americans in their mid-twenties are saddled with debt. But is there nothing you can do?
Typically, college students are expected to repay their student loans as soon as they graduate, unless graduate school, medical school or further studies are scheduled. This monthly payment may be as low as $134 per month at first and may extend for up to 10 years.
Extended repayment plans for larger debts may be made over a period of up to 30 years to reduce monthly payments as well. An "Income Contingent" plan may be made for as low as $5 per month if the student has a very low income and can last for up to 25 years, when a write-off becomes possible for the remaining balance.
The "Income Based" plan will ask that a certain portion of a student's income go toward the student loan and lasts for 10 years. The reason many bankruptcy student loan petitions are sought is that the income contingent and income based plans aren't available to students whose parents filed the initial aid applications forms. Additionally, interest charges apply once the student has graduated, so the total debt amount can seemingly never end. While bankruptcy student loan exemptions do not technically exist, in his book "How To Bankrupt Your Student Loans," author Chuck Stewart asserts that there are ways to get around this. Students can use the power of attorney to prove the "undue hardship" that the loan is causing.
Most courts use something called "The Brunner Test" to prove or disprove financial hardship. Under this test, they will look at the debtor's living condition and the impact that paying the loan would have on maintaining the minimal living standard. They will also look at the debtor's future prospects for repaying the loan and evaluate whether the debtor has demonstrated good faith during the loan repayment period.
The average student loan is $40,000, which will become amortized over 30 years with monthly payments of $1,000 or more. For many recent grads, this debt is worse than a mortgage and leaves them little chance at advancing toward the goals of home ownership and saving for retirement.
As a result, many students hire legal professionals to prove that repaying the loan causes "undue hardship." In rare cases, a bankruptcy student loan discharge will be granted if the student has exhausted all possibilities for increasing his or her income and has whittled down expenses to a point where further bills would leave him or her homeless, medically uninsured, without transportation or without the tools needed to obtain employment.
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