If you fall behind in your student loans, the government has a number of ways to come after you to get their money. When you stop paying on your student loans altogether, they are considered to be in default.
If your student loans are in default, the government can deny you new student loans and grants. This can cause serious financial stress if you are trying to get additional training for a better job, but you can't afford to go to school without financial aid.
When student loan lenders are attempting to collect on the loan, they have the right to garnish your wages without obtaining a judgment from the court. By law, you are to be notified by the government about your right to a hearing. You can request a hearing and explain how the garnishment would result in extreme financial hardship.
Another way the government can get your money is to garnish your tax refunds, including any earned income tax credit you are owed from the IRS.
You should receive notice of intent to seize your refund. You have the right to contest this action and ask for a hearing. If you did not receive a notification, you have the right to complain to the Department of Education that you did not get a chance to defend your reasons for the loan being in default.
If you received a joint tax return with your spouse, and the government took the whole thing, your spouse can recover some of the money by sending a form to the IRS. (www.irs.gov)
Certain federal benefits may be taken to collect on Student Loans.
∙ Social Security Retirement and Disability Benefits
∙ Black Lung Part B Benefits
∙ Certain Railroad Retirement Benefits
The government will not take your entire check. They cannot take more than 15% of your total benefits.
Removing Your Student Loan Debt
To get out of your loan default, you can try to get a loan cancellation. In some cases, not only can you get the entire loan wiped out, but get money back you paid on the loan.
Your school ripped you off:
∙ Closed School Cancellation. If your school closed while you were still enrolled or within 90 days of you leaving school.
∙ False Certificate Cancellation. If your state prohibits you from getting a job in the field, you were trained for.
∙ Unpaid Refund Cancellation. You can cancel a portion or all of your loan if after you left the school, they didn't pay you any refunds you were owed.
∙ Disability Cancellation. If you are permanently and totally disabled, you can get your student loan canceled. To get the cancellation, you must get a doctor to certify you are disabled and that the disability happened or worsened after you got the student loan.
It is generally challenging to get your student loans discharged in bankruptcy. You must convince the judge that it would be a significant hardship for you to make the payments.
Even if you are unable to get your loans dismissed in bankruptcy, getting your other debt wiped out so you will better be able to pay your student loans could be a significant help.
It's been a long road for Corinthian Colleges, Inc. students who were blindsided by campus closings and subsequent Chapter 11 bankruptcy in 2015. Since then, students who took out loans to attend the for-profit, post-secondary education institution have been fighting to have their loans forgiven. Of the many individuals that attended the college, roughly 35,000 of them attended programs in California, and today the Attorney General for California announced that the state would forgive $67 million worth of private loans taken out in pursuit of a degree.
Students Loans from Corinthian College
When Corinthian College closed its doors and filed for bankruptcy in 2015, students in California and many other states were left holding the bag: no degree, no job prospects, and a fresh new student loan balance. Several loan servicing companies came in to buy the debt, including Balboa Student Loan Trust and Aequitas Capital Management, who took on some of the highest interest loans for California students.
Student Debt Settlement Details
As part of the settlement reached between the company that bought the California Student Loans and students, Balboa Student Loan Trust will:
Immediately halt debt collection activities
Forgive all California private student loans
Repay $500,000 of payments made by California students since August of 2017
Refund an additional $84,000 in previous payments
Admit No Wrong Doing
Student Loan Debt Forgiveness
Because student loan debt can't normally be eliminated during a California Bankruptcy (except in very rare cases), students have been forced to wait for a settlement agreement to be reached for their private loans and to file a lawsuit against the U.S. Department of Education for student loan foreignness with federal loans. If there have been any positive actions to arise out of the closing of Corinthian College it's the national attention now being placed on both student loan forgiveness for students who attended a college or institution that broke the law. Additionally, many congress members and state representatives are bringing up how student loans are treated during a bankruptcy. This opens the door to potential changes in bankruptcy law to include student loans as an unsecured debt that can be eliminated in bankruptcy.
There are several payments that are not dischargeable in bankruptcy such as child support and alimony. Student loans are also among payments that are not typically discharged in a bankruptcy case. That does not mean it is impossible, merely difficult.
In order to have your loan discharged you must prove that the debt imposes a hardship on you and your dependents after filing for Chapter 7 or Chapter 13 bankruptcy. To prove such a hardship, the person must prove a mental, physical, or medical hardships. If the loan company does not challenge the hardship then your debt will be discharge.
It is important to know that even when your loan is discharged, your co-signers are responsible for the remaining balance and interest.
For those who are having a difficult time discharging their debt, the assistance of a bankruptcy attorney can help you during this time. Residents of the Sacramento area can look to the experience attorneys at Liviakis Law Firm. We can aid you through the entire process, contact us today at 916.459.2364
Student loans are ubiquitous these days. Students all over Sacramento, from Sac State to American River College, often graduate and find themselves unequipped to handle the debt burden imposed by student loans. It is a fairly common understanding that bankruptcy isn't much help when it comes to student loans. But earlier this month, the United States Department of Education has issued some new guidelines that may give some glimmer of hope to those seeking discharge of student loan debt in bankruptcy.
The basic rule is that student loan debt can be discharged if the debtor is able to prove that repaying the loan would impose an undue hardship on the debtor. In the past, the Department of Education has vigorously opposed any consumer attempts to discharge their federal student loan debt even when there is a clear undue hardship. In practical terms, it has been very difficult to get a discharge for student loans.
But the new guidelines show that the Department of Education has a formula to determine when it is not advantageous for the government to oppose the discharge request. Specifically, the guidelines say, "If a holder determines that requiring repayment would not impose an undue hardship, the holder must then evaluate the cost of undue hardship litigation. If the costs to pursue the matter in bankruptcy court are estimated to exceed one-third of the total amount owed on the loan (including the principal balance, any unpaid accrued interest, and current, unpaid accrued collection costs), the holder may accept and/or not oppose an undue hardship claim by the borrower in an adversary proceeding."
The guidelines also offered a number of factors and considerations as points to consider by lenders in a discharge situation. The following are some of these factors:
- Whether a debtor's health has materially changed since the student loan debt was incurred.
- Whether significant time has elapsed since the debt was incurred.
- Veterans who are unemployable due to a service-connected disability (as determined by the Department of Veterans Affairs).
- Whether the debtor's expenses are reasonable and show that she minimizes unnecessary expenses.
- Whether the debtor is approaching retirement.
- Whether a debtor has filed for bankruptcy due to factors beyond his or her control, such as a divorce resulting in the diminution of family income, which will not realistically be reestablished.
Basically, if a consumer debtor and her attorney put together a reasonable and well-documented case that the student loan debt will create an undue hardship based on the considerations provided, then the lender should not oppose the discharge. While this isn't a cure-all for all student loan debtors, it is a sign that things are changing. These guidelines could very well make it easier for those who are being crushed by the overwhelming burden of student loans to get a discharge. Time will tell if the lenders choose to follow these guidelines. The important thing to take away is that, if a debtor seeks the advice of an experienced bankruptcy attorney, she will have a better chance of success when fighting for a student loan discharge.
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