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Suffering Under Student Loan Debt? Our North Carolina Bankruptcy Attorneys May Be Able To Help.

Millions of Americans have student loan debt that will last for years or decades after they graduate. These debts are challenging on their own, but they can feel especially burdensome when combined with other debts and financial stressors.

If you are worried about overwhelming debt that seems to be unmanageable, we invite you to discuss your concerns with our bankruptcy attorneys at Wootton & Wootton. Filing for personal bankruptcy can help some debtors directly resolve their student loan debts. For others, bankruptcy can free up the assets needed to afford the payments.

We make it easy to learn about your legal options by offering free initial consultations. Just call 919-794-8660 to get started.

Can Student Loans Be Discharged In Bankruptcy?

In order to qualify to have your student loans discharged, you will have to prove that your loans are causing you undue hardship, according to U.S. News & World Report. Many bankruptcy courts look to the three-part “Brunner test” to determine whether an undue hardship exists. If you meet all three criteria, you can then file for an adversary proceeding.

Under the Brunner test, you will need to demonstrate all of the following:

  • That you have made a good faith effort to pay your loans, usually by contacting your lender to discuss payments or to work out a plan.
  • That you will be unable to maintain a serviceable standard of living if you continue to have to make payments.
  • That your finances are likely to remain the same for the foreseeable future, without any significant income increase.

While it is difficult for most people to meet these criteria, it is a myth that student loans are never dischargeable in bankruptcy. Because of the widely held misconception, however, many people don’t even try to include them in their bankruptcy petition.

This is likely a mistake, as one study found that 40% of borrowers who included their student loans in their bankruptcy had at least some portion of their student debt discharged. Therefore, while it is not common for student loans to be discharged during bankruptcy, it is possible and may be worth pursuing if you think you might qualify.

What Happens To Your Loans While Your Bankruptcy Case Is Pending?

Creditors cannot take action while your case is pending. Filing for Chapter 7 bankruptcy may provide you with the leverage you need to negotiate a new payment plan with your lender. It isn’t uncommon for a lender to reduce the interest rate on a loan, waive a portion of the balance or make other concessions that make your debt easier to manage. An attorney may be able to help you during the process of pursuing a loan modification.

Managing Student Loan Debt Outside Of Bankruptcy

Much as many homeowners refinance their mortgages in order to save money and get a lower interest rate, your student loan can also be refinanced. However, many federal loans have protections for borrowers. If you get sick or lose your job, you may have options such as forbearance or deferment, which are offered by the government.

Paying off a federal loan with a private one is a risky move, but may be worthwhile if your goal is to save money and get your loan paid off quicker. You can pay off federal loans with these private loans if you can find one with a lower interest rate. Doing so will give you a lower monthly payment going forward and will save you money on interest over time.

Another option is to switch your loans to an income-driven repayment plan. While this method actually costs you more in interest over time, it makes the debt more manageable since you know you will never have to pay more than you can afford each month. Furthermore, the balance of your loan may be forgiven at the end of the time period if you continuously make payments at that amount for a specified time. With this type of plan, your income is used as the starting point and then a percentage cap is applied to determine your monthly payment.

Are There Smart Strategies For Managing Student Loan Debt And Credit Card Debt?

Being in debt can be especially stressful when you have both student loans and credit card debt. Both types of loans have their disadvantages. Credit cards are easy to come by and often come with low monthly minimum payments. However, the interest rates are relatively high and can soar even higher if you miss a payment.

A college education is expensive these days, and student loans may seem like a good investment. But even if a degree in a desirable field is obtained, there is no guarantee of a job or of any income to start paying off one’s debt.

There is no one-size-fits-all approach to deciding which debt to try to pay off first. One strategy is to pay off whichever debt has the lowest balance first. Doing so will likely feel like an accomplishment and motivate a person to keep tackling their debts one at a time. For most people, this means continuing to pay the minimum amount on their student loans and getting rid of their credit cards first.

Another strategy is to tackle the debt with the highest interest rates first, since high interest debts cost more money over time. Whatever strategy is utilized, it is possible to pare down student loan debt and credit debt, and doing so should also help to reduce stress levels at the same time.

Opportunities To Delay Student Loan Payments

While not a solution by itself, delaying payments can be very helpful during times when money is tight and income is very limited. Here are some options that could help you delay or defer student loan payments:

Request Deferment Or Forbearance

Requesting either a forbearance or deferment is often the easiest way to delay payments on your student loans. Both options allow you to temporarily suspend payments on the balance of your student loans. A deferment may allow you to do so without accruing interest, but during a period of forbearance, your loans will continue accruing interest.

Continue Your Education

If you have graduated from college and are considering options for continuing your education, doing so may have an added benefit. When you enroll at least half-time in an accredited program, you typically do not have to make payments on your student loans. You can continue focusing on school and begin making payments on your loans once you complete your next degree.

Considering Bankruptcy

Sometimes the aforementioned options are not ideal for addressing student loans. If you are looking for an alternate way of handling your debt, Chapter 13 bankruptcy may be an effective option in certain cases. Our attorneys can provide more information during a free initial consultation.

Beware Of Student Loan Debt-Relief Scams

Many people with student loans in North Carolina may have heard about programs that can help them reduce their loan payments or consolidate their debt. Such programs are available for free through the federal government.

However, similar-sounding debt-relief plans offered by private companies are not free. They may not be as effective, and some are simply scams.

An entire industry has been built around student loan debt relief, and while it is legal for a company to help someone prepare the documents they need for submission to a legitimate, government-based debt-relief program, many of these companies engage in questionable behaviors. Some of these companies have been sent cease and desist letters or shut down, but the problem is too pervasive to eradicate entirely.

When considering debt-relief services, be very wary of any private company offering significantly better services than those offered for free by the government. These offers are likely too good to be true.

Contact Us Today And Speak To An Attorney For Free

Wootton & Wootton offers free initial consultations at our offices in Durham and Henderson, North Carolina. To schedule yours, call us today at 919-794-8660 or submit an online contact form.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.