Investing in your education is something that can come with a big price tag. In fact, many people find that they have accumulated thousands of dollars in debt by the time they finish their education. And, for some, it is too much to repay. For some, bankruptcy is a necessary solution before finishing school. This can be done even if your student loans are not ready to be paid back. Did you know that college debt is one of the most common reasons that people file bankruptcy? So, what type of bankruptcy can help?
Types of Bankruptcy
Chapter 13: Under Chapter 13, you enter into a repayment plan that provides a way to make payments on your debt, while keeping your assets. A Chapter 13 bankruptcy takes between three and five years to complete.
Chapter 7: This chapter requires that you liquidate your assets. The money made from the sale of your assets is used to repay your creditors the amount that is owed. Any debt still owed after your assets have been distributed is discharged.
For more information on the types of bankruptcy, click here.
Student Loans in Bankruptcy
Most people are unable to wipe out student loan debt through a Chapter 7 or Chapter 13 bankruptcy. However, this does not mean that it is not possible. First, you would need to file an adversary proceeding. If a court finds that repaying your student loans will create undue hardship on you and your dependents, then it can be discharged through your bankruptcy. This is often determined by the court by using the Brunner Test.
What is the Brunner Test?
The Brunner test is a means of determining if continuing to repay your debt will lead to undue hardship for you and your dependents. You will also need to show that you have made efforts to repay your student loan(s) back.
You will need to speak with an experienced bankruptcy attorney to better understand the bankruptcy process and how it can impact your debt. So, our recommendation is always to “shop around” and meet with different attorneys.
Grant and Scholarships in Bankruptcy
Any money received from the federal government is not dischargeable through bankruptcy. However, if you get a Pell Grant, you will not lose your funding if you file for bankruptcy. A Pell grant does not need to be repaid. There are other grants and scholarships that are exempt from being taken in your bankruptcy.
You can rest assured that the money received from a grant or scholarship is considered “off-limits” to your creditors and bankruptcy trustee. In fact, it will not matter if the money is deposited in your personal savings or checking account.
Money received from government-funded student loans and grants are protected. This means that you cannot have that money taken through garnishment or levy. It is important for you to share with your attorney the types of money that you are using to pay for college. Be sure to speak with a bankruptcy attorney about your financial situation and any concerns you have about bankruptcy. A qualified bankruptcy attorney will be able to present the best options for your situation as well as the pros or cons for each option.
Be advised that there are other ways to take control of your student loan debt. There will be instances when pursuing a bankruptcy may not be the best choice for your situation. But, how will you know? Take time to research forgiveness programs and bankruptcy attorneys. Take the time to meet with either option and learn about what options are available to you. Be sure that you choose the best fit for your current situation.
Still Unsure What To Do?
At the Law Office of Daniela Romero, we believe in relationships that are based on trust. Before we work together we would like to get to know you and we would like you to get to know us. This is to make sure you are the right fit for us and that we are the perfect fit for you, so that you can be completely comfortable sharing even the most intimate and difficult details of your case with us so we can offer you representation to the fullest extent of the law.
If you are worried about your debt and want information about what you can do to reduce or eliminate it entirely: Call our office today to schedule a consultation. Let our office go over the best options for you to take control of your financial situation.