It’s possible that you have saved for your college education and still have some student loan debt to clear, so you’re probably considering the option of a bankruptcy discharge. Taking a Chapter 7 means test calculator and filing for a bankruptcy discharge is not the most ideal way to solve a student loan debt problem due to the uncertainties and negative side effects that characterize it. After filing for a discharge on your bankruptcy loan, it will remain on your credit history for some time and it can create a barrier to getting an apartment, employment and other beneficial things.
But bankruptcy may be the only option in some instances. It has to be an option of last resort, and when you’re filing for it, you should be aware that it’ll rob you of multiple opportunities.
Dave Ramsey is a financial guru who has many thoughts and ideas about student loan consolidation and bankruptcy. Let’s also see what Dave Ramsey thinks on the subject. Although per reddit, Dave Ramsey does have things that some people do not agree with.
Here are some questions that’ll address what you need to know to create the right expectation about the process:
1. Why is it difficult to benefit from getting bankruptcy on your student loan?
There are numerous reasons why people find it difficult to file for a bankruptcy discharge. The first reason is that filing for a bankruptcy discharge requires that you invest effort and time in the process. The process of getting your documentation done can be somewhat intensive as it involves giving every detail of the financials to the borrower. Although there’s no guarantee that a debtor will successfully get his/her student loan debt cleared through bankruptcy discharges like the ITT, it can be worth the trial if there’s no alternative to it.
The uncertainty that’s attached to filing for a bankruptcy discharge is primarily due to the fact that only a court can grant your request for a bankruptcy discharge. When you’re in court, you’ll have to prove to the judge that you’re passing through an “undue hardship.” The term “undue hardship” has numerous requirements that have to be met to be considered for discharge. Ideally, a debtor has to prove that he/she is unable to clear their debt to be able to claim “undue hardship.” If you purchase a cup of coffee daily or you use a smartphone then you’re still able to pay for your debt, and cannot claim “undue hardship.”
In summary, the difficulty and administrative process that’s involved in proving that you have a need for bankruptcy make the entire process a pretty difficult feat to achieve.
You should have it in your mind that individuals that get student loans for private schools can easily get debt forgiveness than those that apply for student loans for a federal school. However, both of them have access to numerous bankruptcy alternatives.
2. How you can prove “Undue Hardship”
You’ll have to first get acquainted with the conditions that matter in a bankruptcy court before you can prove your bankruptcy case successfully. There are numerous methods that courts employ to evaluate whether a debtor qualifies for a bankruptcy discharge or not. The most common of those methods is a test type that’s commonly referred to as the Brunner test. Generally, this Brunner test makes use of three distinct elements, which are:
· The details of the borrowers’ current financial performance, which include its expenses and income
· The extent of expected changes in the debtors financial status across the years.
· The extent of effort and good faith that’s invested in solving the given debt problem prior to filing for a bankruptcy discharge.
As such, you should have it at the back of your mind that your chances of securing a bankruptcy discharge reduce significantly if you have a good chance of getting a job. Chances of getting a discharge are also significantly low if the borrower is not disabled and doesn’t have employment barriers; in such instance, it’s best to opt for forbearance/deferment to secure relief from payments.
Also, the court may reject a bankruptcy discharge if the debtor did not try other bankruptcy alternatives before filing for a discharge; as that’s the sign that the debtor did not try enough.
Besides, some states use other types of tests. For example, a similar and effective test that’s used is called the Totality of Circumstances; however, this method doesn’t require making prior efforts as a means of determining whether you qualify for a discharge or not. Since these are conditions without any noteworthy borders, it’s somewhat difficult to deal with them and foresee the trend of events. Here are some factors that can determine whether you qualify for a discharge or not.
· An income that’s lower than the poverty level
· Lack of income improvement for a long period
· A borrower then depends on others for survival
· A borrower that has an ill child that needs round-the-clock monitoring.
· A debtor that has a mental or physical disability.
3. Is there any difference between Chapter 7 and Chapter 11 and Chapter 13 Bankruptcy?
You need to be particular about the type of bankruptcy discharge you’ll like to apply for. Both Chapter 7 and Chapter 13 bankruptcy are distinctively different. You may also be researching Chapter 7 vs Chapter 11.
Chapter 7 Bankruptcy is a liquidation bankruptcy; this means that the borrower will lose all its assets that are not protected by bankruptcy law. The bankruptcy court sells the debtor’s asset and uses the money to pay the debts of the lender.
Chapter 13 bankruptcy on the other hand is a restructuring or reorganization debt repayment process that helps to lower repayments and extend the period of payment. For Chapter 7 bankruptcy, the effect of the bankruptcy discharge will remain on your credit report for a 10-year period while the Chapter 13 credit report will remain for a 7-year period.
4. What does Dave Ramsey think about student loan refinancing and bankruptcy?
Dave Ramsey actually approves of student loan consolidation in a couple of different situations, specifically if you are moving from a variable to fixed interest rate or if you are saving money on interest.
There are numerous factors that you’ll have to consider before you choose to decide on getting a bankruptcy discharge. Unfortunately, if you not properly evaluated, the debtor may be more neck-deep in debt. This unfortunate consequence will become the lot of a debtor that files for a Chapter 13 bankruptcy and she/he owes some loans with more priority than student debt. Apart from that, any debtor that can pay their attorney will unlikely meet the condition for being considered as one suffering undue hardship.
Since the bankruptcy process is a very expensive one, it’s best to get a piece of professional advice to know if you should file for a bankruptcy discharge or consider other debt-relief options.
What options do you if you can’t meet student loan debt obligation
Repaying your student loan can be somewhat exhausting. If you notice that you’re incapable of paying your student loans because things might get tough, here are some options to explore:
1. Change your repayment plan
When you have trouble meeting up with the financial obligation of clearing your student loan, you should consider altering the repayment plan on your loan. Most federal students qualify through income-driven repayment plans that cover monthly repayment which is usually within 10%-20% of their monthly income.
There are numerous types of repayment plans, let’s check out a few options you can explore.
For these, you may want to find a debt payoff app that helps you eliminate the debt.
a) Extended graduated and standard repayment plans
This type of repayment plan starts with requiring you to pay a low amount and then increasing the amount gradually till you’ve cleared your debt. The extended payment plan is one that gives you room to choose payments that can either be fixed or graduated. You will have a fixed monthly payment if you choose the standard repayment plan.
b) Income-driven repayment plans
There are some repayment plans that are referred to as pay-as-you-earn and is also called REPAYE and PAYE plans that often end up pricing more than the more common 10-year repayment plan.
2. Search for Student Loan Consolidation
You may want to consider applying for debt consolidation, especially when you have a problem keeping up with your debt payments. It’s possible to qualify for consolidation on federal student debt; this consolidation will consolidate the loans from a monthly payment or a single lender into a loan. The debtor won’t be charged any fee for the application. And the majority of federal student loans qualify to receive direct consolidation on their loan. However, you may pay a monthly payment that’s lower than current payments. Consolidation provides you with up to 30 years to clear off your loan obligation.
3. Look into Deferment or Forbearance
If you can’t pay back your student loans due to economic challenges, it’s possible to hold payment on your federal loans for up to three years. If you don’t qualify for deferment, you may qualify for forbearance which may reduce or cancel your payment for up to 12 months.
Debtors must first apply for deferment and forbearance and must keep making payments till they hear the outcome of their application. During forbearance, you will be required to pay the interest on your student loans, however, deferment may not require that you pay interest on some loans.
4. Apply for debt forgiveness and search on Reddit.
Another option that you might want to consider is the possibility of getting loan forgiveness. Federal student borrowers that are involved in the public service have the opportunity to latch on to the Program of Public Service Loan Forgiveness to get their debt cancelled after a ten-year period of paying their debt.
It can be difficult to pay off your student loan, but you can take advantage of numerous debt relief plans that are available. Dave Ramsey has approved of student loan consolidation in the past, and the government does provide that avenue in certain situations, so you may understand that option.
If you have difficulty paying up your student loans now, a good option is to contact your loan services and get answers to any question you have. If you’re unable to meet up with debt payment, and you refuse to take any step to solve the problem, you may find yourself in a situation where you’ll have to begin payment again.