Minneapolis Bankruptcy Attorney Counsels Clients on Student Loans
Effective strategies for dealing with non-dischargeable debt
At Lunde Law, PLLC, we are seeing an increasing number of bankruptcy clients burdened with student loan debt. For many, student loans are their primary financial problem. Lunde Law, PLLC works closely with bankruptcy clients to discern the source of their financial difficulties and select remedies that give them the best chance to recover. Where educational debt is only one piece of the puzzle, we can suggest strategies for alleviating other debt that make your student loans easier to repay. Where student loan debt is at the heart of your financial dilemma, we can make the most persuasive case for a hardship exception.
How bankruptcy reform impacts educational benefits
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 amended Title 11 of the United States Code to make all educational loans non-dischargeable in Chapter 7 bankruptcy. This includes government guaranteed loans, loans from private non-profit agencies and obligations to repay amounts advanced in the form of scholarships. There are exceptions for debtors who can demonstrate undue hardship to themselves and their dependents. Unfortunately, that level of hardship is difficult to establish, because the debtor must prove:
- It is impossible for the debtor to repay the student loans and live above the poverty line
- This impoverishment will continue throughout the repayment period
- The debtor, up to this point, has made a good-faith effort to repay the loans
Only if the court finds a “certainty of hopelessness” will it approve a hardship discharge of the student loan debt.
Always pay non-dischargeable debts first
When student loan debtors find themselves in financial difficulty, they often apply for a deferment or forbearance on their loans while they work to repair credit. During this period, the debtor is not required to make payments, so he or she can pay down other debt, such as credit cards. However, during the deferment or forbearance, interest continues to accrue, and as a result, the total due on the student loan increases. After a period of financial struggle, if the debtor decides to file for bankruptcy, he may have eliminated most of his dischargeable (credit card) debt, while keeping the bulk of his non-dischargeable (student loan) debt. Though every debtor’s situation is different, Lunde Law, PLLC usually advises debtors to pay non-dischargeable debts first through strategies such as debt consolidation, so if you must file for bankruptcy at a later date, you get the maximum benefit.
Contact a reliable Minneapolis attorney for advice on student loans and bankruptcy
Lunde Law, PLLC can explain your options regarding student loan debt and consumer bankruptcy. To schedule a free initial consultation, call our Minneapolis office today at 612.200.2327 or contact us online.