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The Top Ten Reasons For Bankruptcy

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1. Eliminate Your Debts. The entire goal of bankruptcy is to eliminate debt.  In bankruptcy terminology this is known as a “discharge” of debts.  Whether you file a Chapter 7 or Chapter 13 bankruptcy, by the time your bankruptcy case is closed, all or most of your debts should be eliminated.  2. Stop Foreclosure on Your [...]

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Can Student Loans Be Discharged in Bankruptcy?

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Student loans cannot easily be discharged through bankruptcy.  If you are considering filing for bankruptcy in the Washington, D.C. area, you should know that certain types of debt are generally nondischargeable, which means that your bankruptcy discharge will not affect the debt at all.  Like most federal and state taxes, child support and alimony, or [...]

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How Do I Stop Garnishment?

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Garnishment (or “attachment”) is a last-ditch effort at debt collection, a tool of last resort for creditors. When you default on a debt, and the creditor is unsuccessful in recovering on the debt, a judgment may be issued against you to garnish property, bank accounts, or wages. Garnishment can often severely impact your monthly finances, [...]

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Can Student Loans be Discharged Through Bankruptcy in Washington DC?

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Today, one of the biggest debt problems that many people face is student loan debt. According to American Student Assistance, around 60 percent of college students — or 12 million college students each year — borrow money to cover the costs of attending school. As a result an estimated 37 million borrowers with outstanding student [...]

The post Can Student Loans be Discharged Through Bankruptcy in Washington DC? appeared first on Lee Legal.

Student Loan Dischargeability in Virginia

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According to American Student Assistance, around 60 percent of all students attending college or pursuing higher education borrow money to pay for tuition. As of 2012, the average student loan balance among all age groups was $24,301, with around a quarter of borrowers owing more than $28,000. These high student loan balances are a major [...]

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The Top Ten Reasons For Bankruptcy

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1. Eliminate Your Debts.

The entire goal of bankruptcy is to eliminate debt. In bankruptcy terminology this is known as a “discharge” of debts. Whether you file a Chapter 7 or Chapter 13 bankruptcy, by the time your bankruptcy case is closed, all or most of your debts should be eliminated.

2. Stop Foreclosure on Your Home.

If your mortgage company has sent you a Notice of Foreclosure Sale, you must act quickly. In many cases it will be possible to save your home through a Chapter 13 bankruptcy. Bankruptcy will not eliminate the missed mortgage payments, but you will be able to repay those payments over a three to five year period. You will also buy some time to allow you to work out a refinance or mortgage modification with your lender. We will work together to find a repayment plan that will work for your budget.

3. Stop Creditor Harassment and Phone Calls.

Creditors can be rude and relentless. Now, with the advent of skip-tracing, collection agents will call your friends and family to ascertain your whereabouts. Creditors will call you incessantly at work, at home, and on your cell phone. Bankruptcy can put an immediate stop to creditor harassment.

4. Loss of Employment.

Unemployment is the most common reason to file for for bankruptcy. The loss of income is often devastating, sometimes even moreso to a two-income household. Instead of exhausting your savings, filing for bankruptcy is often a much better strategic option.

5. End Wage Garnishments.

Both Chapter 7 and Chapter 13 bankruptcy will stop current or impending wage garnishments. A garnishment can decrease your paycheck to levels that make it impossible to pay for basic necessities. Bankruptcy eliminates the garnishment and lets you address your creditors on a more level playing field.

6. Prevent Repossession of Your Car or Truck.

Generally speaking, car companies are even more quick to repossess a car than mortgage companies are to foreclose on a house. If you have missed payments on a vehicle, a Chapter 13 bankruptcy will allow you to make up the missed payments over a three to five year period. Even if the company has already repossessed your car, we can force them to return it, but we must act quickly to get back the vehicle before it is sold at auction.

7. Eliminate or Reduce High Medical Bills.

An unforeseen illness or accident can be ruinous to your finances. Monthly payments often fall to the wayside when a family is faced with the choice of either paying a creditor or caring for a loved one. Bankruptcy can often help you repair your finances from a sudden health problems.

8. Establish Reasonable Repayment for Large Amounts of Student Loan Debt.

In most cases, student loans cannot be eliminated by bankrupcty. Student loan companies will try to establish with you the highest monthly payment possible. Bankruptcy can not only help you consolidate your student loan debt, but allow you to make a reasonable monthly payment based on your disposable income.

9. Challenge Creditor Claims.

Sometimes creditors do not credit your account with payments you have made. Sometimes creditors claim that you owe more than you actually do. Bankruptcy allows you to challenge fraudulent claims, and creditors have to prove by detailed statements what you actually owe, which your bankruptcy attorney can scrutinize for accuracy. In some cases, you will not be the only person that a creditor has defrauded. Bankruptcy offers a robust opportunity to challenge creditors and force them to document their claims against you.

10. Prevent Your Utilities From Being Shut Off.

If you are facing foreclosure, then utility companies may also be threatening to shut off basic services. Bankruptcy can help you keep the lights on and the water flowing.
Do Any of These Reasons Apply to You?

If any of these reasons apply to you, then calling an experienced bankruptcy attorney is a smart choice. Call Lee Legal at (202) 448-5136 or email bvlee@lee-legal.com to schedule a free, confidential consultation. Call and find out your options today.

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Are student loans dischargeable in bankruptcy?

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In the United States there is more than $1.2 trillion in outstanding student loan debt, 40 million borrowers, an average balance of $29,000. Are student loans dischargeable in bankruptcy? No. If you are considering filing for bankruptcy in the Washington, D.C. area, you should know that student loan debt is generally nondischargeable, which means that your bankruptcy discharge will not affect the debt at all. Like most federal and state taxes, child support and alimony, or criminal restitution and fines, student loans will survive the bankruptcy process and will be as valid and collectible as they were prior to the bankruptcy.

Under Bankruptcy Code 11 U.S.C. § 523(a)(8)(B), student loans can be discharged in bankruptcy only if the debtor can show that the debt would impose an “undue hardship” on the debtor. Of course, “undue hardship” is a term that is not defined in the Bankruptcy Code. Courts have taken an especially draconian view of undue hardship, which is based on the debtor’s individual factual circumstances.

If you want to file for bankruptcy protection in Virginia, Maryland or Washington, D.C., then your case will be controlled by the law of the Fourth Circuit. The Fourth Circuit applies the “Brunner test,” based on Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). The Brunner test is a three-part test that requires the debtor to prove the following:

  • That the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;
  • That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  • That the debtor has made good faith efforts to repay the loans.

In many cases, the debtor can meet the first and third parts of this test, but cannot prove the “additional circumstances” required in the second part. Courts have called the second part “a demanding requirement,” one even that necessitates a “certainty of hopelessness” that the debtor will not be able to repay the student loans. In re Brightful, 267 F.3d 324, 267 (3d Cir. 2001). Most debtors who file bankruptcy are doing so to improve their financial conditions with the hope that their lots in life will get better. Most debtors, therefore, by definition fail the second part of the Brunner test. Debtors, according to the court, have too much hope.

There are lots of companies springing up, all of a sudden, and claiming that student loans are dischargeable in bankruptcy. Don’t believe the hype. Brunner is still the law of the land.

AN EXACTING STANDARD

Take, for example, the case of Roberta Spence, In re Spence, 541 F.3d 538 (4th Cir. 2008). Ms. Spence obtained her undergraduate and master of arts degrees at Wichita State University, and finished her Ph.D. at American University, although she did not complete her dissertation. Unable to find work in her profession, Ms. Spence finally obtained full-time employment with E*Trade, five years after her Ph.D. program was completed. As a mail services specialist at E*Trade, Ms. Spence earned approximately $26,000 annually. When she filed her bankruptcy, she was running a monthly income deficit of $122, and her student loan total was approximately $166,000. Obviously, Ms. Spence would be repaying her student loans for a long, long time. The court was unmoved:

We conclude that Ms. Spence has not met this exacting standard. She is now in her late 60s and has a low paying job,but she is by all accounts a reliable, diligent worker with amaster’s degree along with completed Ph.D. course work. Her grades were excellent, and her education is not so outdated that higher-paying alternatives would be unreachable. Ms.Spence suffers from diabetes and high blood pressure, but neither these ailments nor any other age-related health problems affect her ability to work full-time. She has had difficulty obtaining a higher paying position, but she has not actively sought other employment or even updated her resume since obtaining the full-time job at E*trade. . . . We are not unsympathetic to the disadvantages of her current circumstances, but the facts point to no “additional circumstances,” outside of the normal hardships faced by bankruptcy petitioners, that would render her situation hopeless.

In other words, the inability to repay student loans is not sufficient to obtain a discharge through bankruptcy. In this case, a diabetic single woman in her late 60s with an apparently worthless education and making $26K a year was unable to discharge her student loans. The “not unsympathetic” Fourth Circuit’s response: you’re not hopeless enough.

THINK FORWARD, REASON BACKWARD

Actually, there is some hope on the horizon. The pending Private Student Loan Bankruptcy Fairness Act of 2010 would amend the federal Bankruptcy Code to remove qualified educational loans as an exception to discharge from bankruptcy. As of September 15, 2010, the bill has been approved by two subcommittees, but seems unlikely to move forward very quickly with the current political makeup of the House of Representatives.

In addition, you can file a Chapter 7 to discharge all eligible debts (credit cards, medical debts, payday loans, old utility bills, etc.) which allows you to free up income to pay your student loans. Use a Chapter 7 bankruptcy to wipe out dischargeable debt and free up money to pay debt you cannot discharge in bankruptcy.

In most Chapter 13 cases, student loans receive the same percentage payment as other unsecured debts. If you are considering filing a Chapter 13 to repay student loans, it is critical that you work with your attorney to ensure that the student loan receives a substantial payment each month both to cover the accrued interest and to reduce a portion of the principal balance.

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How Do I Stop Garnishment?

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Garnishment (or “attachment”) is a last-ditch effort at debt collection, a tool of last resort for creditors. When you default on a debt, and the creditor is unsuccessful in recovering on the debt, a judgment may be issued against you to garnish property, bank accounts, or wages.

Garnishment can often severely impact your monthly finances, and garnishment reflects very negatively on your credit score and credit report. How do you stop garnishment? You have to either pay the debt or file bankruptcy.

Usually, once a garnishment has started, your only choices are to make a deal with the creditor or to declare bankruptcy. If you think your creditor or collection agency may be taking steps to have your wages garnished, the best way to avoid it is either to pay the debt in full or to arrange an installment agreement to repay the debt over time.

Stop Garnishment of Wages / Paycheck / Payroll

Garnishment can be personally embarrassing. After all, your employer is now aware that you are experiencing financial problems. While the Consumer Credit Protection Act makes it illegal for an employer to fire you for a single garnishment, if you have more than one garnishment, all bets are off.

There are garnishment limits unique to every jurisdiction. In addition, the federal Consumer Credit Protection Act limits garnishment to 25% of your disposable income. Every state also has its own garnishment exemptions.

If your paycheck garnishment is severely impacting your ability to support yourself and your dependents, you may ask the court to reduce the percentage of your garnishment. You will need to fully document your household income and monthly expenses in order to convince the court that your garnishment should be reduced.

Stop Bank Account Garnishment

Bank accounts and other forms of property can also be garnished. This is called “nonwage garnishment.” The creditor will attempt to attach (or seize) the entire amount of the bank account, up to the amount of the debt owed. If there was a lien legally placed against your account, the only way to get the money back is to file bankruptcy quickly after the account has been frozen. You must act quickly, before the bank transfers the money to the creditor.

Stop Garnishment in DC, VA, MD

It is legally irrelevant whether the account is held jointly or whether the money in the account was actually deposited by you.

You may simply stop keeping your money in a bank account, however, that is obviously very inconvenient. You will also need to change any direct deposits and automatic bill payments. The only sure-fire way to stop a bank account garnishment is to file bankruptcy.

Stop IRS Garnishment

Most federal agencies, including the Internal Revenue Service, can garnish up to 15% of your after-tax income. The IRS garnishment will continue until the liability is paid in full or until the statute of limitations prevents the IRS from collecting the tax.

The very best way to stop an IRS garnishment is to enter into an installment plan in which you make a monthly payment in addition to your income withholding.

Both Social Security Retirement Benefits as well as Social Security Disability can both be garnished or levied by the IRS. Section 6334 (c) of the Internal Revenue Code allows Social Security Benefits and Disability to be garnished to collect unpaid Federal Income Taxes. Typically, the IRS will only garnish 15% of such benefits.

Stop Garnishment on Student Loans

The Department of Education can garnish 15% of your after-tax income. The federal government, unlike other types of creditors, has an additional weapon: administrative wage garnishment. This means that the government can garnish wages, attach bank accounts, and seize property without first getting a court order or judgment against you. You must be notified in writing, however, at least 30 days before the garnishment begins.

Unlike private creditors, the Department of Education is somewhat easier to deal with, and you may be able to prove that the garnishment is causing you or your family an undue hardship. Private student loan creditors will not afford you such an opportunity.

Stop Garnishment Without Bankruptcy

Once a garnishment has been started, a creditor is not going to negotiate a repayment plan. The creditor has already gone through the time and expense of obtaining judgment against you and filing garnishment paperwork with the court.

Instead of depending on you to make payments, the creditor can rely on regular and timely payments from your payroll department or bank.

The only way to stop garnishment at this point is to file a Chapter 7 or Chapter 13 bankruptcy.

Don’t Bury Your Head in the Sand

Ignoring money problems doesn’t make them go away. Smart consumers understand that garnishments can be avoided if the problem is addressed early and aggressively enough.

Stop garnishment in Washington DC or Maryland: call (202) 448-5136.

Stop garnishment in Virginia: call (703) 879-2870.

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Can Student Loans in DC Be Discharged Through Bankruptcy?

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Today, one of the biggest debt problems that many people face is student loan debt. According to American Student Assistance, around 60 percent of college students — or 12 million college students each year — borrow money to cover the costs of attending school. As a result an estimated 37 million borrowers with outstanding student loan debt, and in a situation where the average young person has upwards of $20,000 in student loans. In fact, the class of 2015 was the most indebted in U.S. history. Students who threw caps in celebration last May held, on average, $35,000 in debt. Multi-thousand dollar student loan debt can be a problem for anyone, but for those who are unable to find jobs or who end up coping with financial or physical struggles, repaying this debt can seem insurmountable. Unfortunately, under current laws, with limited exceptions, student loans in DC (just like every other U.S. jurisdiction) cannot be discharged in bankruptcy.

Chapter 7 Bankruptcy and Student Loan Debt

Student loans are treated differently under the law than the vast majority of other kinds of debt. Although student loan debts are unsecured, meaning there is no collateral to guarantee them, they are provided with special legal status. As a result, student loan debts generally cannot be discharged or eliminated in a bankruptcy filing even though most other unsecured debts can be. Student loan balances typically cannot even be reduced in a bankruptcy filing, even when students cannot find a job or are struggling.

Lawmakers have tried several times in recent years to make changes to these laws as fears of a student debt crisis continue to mount. However, these efforts have thus far not been met with success and students crippled with student loan debt typically will be unable to get the relief that other debtors can find in the bankruptcy code.

Hardship Discharge and Student Loan Debt

While bankruptcy is typically not a viable means of resolving student loan debts, there are extremely limited exceptions. In some cases, for example, if a debtor can prove that repayment would be an undue burden, it may be possible for debt to be discharged.

Proving this goes far beyond just showing you cannot get a job or cannot pay. Typically, you’d need to show extreme hardship such as proving you are permanently disabled and will be unlikely to ever earn money that would make it possible for you to pay back any portion of student loans.

Hardship discharges are exceedingly rare and if you or a loved one truly has fallen onto very hard times and are unlikely to ever be able to recover, you should consult with an experienced bankruptcy attorney for help in proving that you are eligible for a hardship discharge.

Chapter 13 but not Chapter 7

While in most cases a Chapter 7 bankruptcy won’t help to eliminate student loan debts for most people, it can help you to eliminate or renegotiate other debts so your student loan debts become more affordable to pay. On the other hand, a Chapter 13 bankruptcy can help you restructure your debt in a single repayment program for all of your creditors — including student loan lenders. If you have significant amounts of other debt that are affecting your finances, consulting with a bankruptcy lawyer to explore your options would be a smart choice.

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Student Loan Dischargeability in Virginia

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According to American Student Assistance, around 60 percent of all students attending college or pursuing higher education borrow money to pay for tuition. As of 2012, the average student loan balance among all age groups was $24,301, with around a quarter of borrowers owing more than $28,000. These high student loan balances are a major burden on college graduates, especially those who cannot find a job in their field or who are only able to find a low paying job.

Those struggling with student loans and unable to make their payments may find themselves facing aggressive collection actions. Not only can lenders use debt collectors and pursue normal methods of collecting the debt, such as contacting you regularly and taking legal action for default, but student loan debtors also have special legal protections that make it even easier for them to try to get loans repaid. Student lenders, for example, may be able to seize tax refunds and apply the money to student loans.

Those who are facing collections activities and who cannot pay their student loans likely wonder whether bankruptcy is the answer. Unfortunately, due to student loan dischargeability rules, Chapter 7 bankruptcy will not discharge student loans. However, Chapter 13 may help you free up the cash you need to make a living wage. Student Loan Dischargeability in Virginia

Rules of Student Loan Dischargeability in Virginia

When you file for bankruptcy, many different kinds of debts can be discharged, which means the debts are forgiven and no longer able to be collected. Credit card debts, personal loan debts and even medical debts and some kinds of tax debt can be discharged. While Chapter 7 and Chapter 13 bankruptcy involve different processes leading up to the discharge of debt, the ultimate goal of both types of bankruptcies is still to wipe the slate clean on debt that is owed.

There are other kinds of debts, however, that cannot be discharged. These debts will remain even after a bankruptcy filing and the debtor will need to continue to pay them or face ongoing collections. Student loan debt falls into this category. Student loan debt is almost never dischargeable in Chapter 7. While there is a very limited exception for when repayment would cause undue hardship, this is usually only an option if something terrible has happened such as becoming permanently disabled and completely unable to work.

Outside of extreme situations, there are essentially no way to discharge student loans in Virginia through a Chapter 7 bankruptcy. Failure to find a job, lack of earning potential, or even the fact that you did not finish your degree are not going to be relevant factors in assessing whether repaying your loans is an undue burden. Whether you currently have the ability to actually pay the debts back or not, you’ll usually still be stuck with the debt and will not able to eliminate it. We here at Lee Legal don’t think this is fair.

This doesn’t mean bankruptcy can’t help, since your student loan payments may become more affordable if you can resolve your other debt issues. Still, before filing, you should speak with an experienced bankruptcy lawyer and make sure it makes sense for you to declare bankruptcy if your goal is to deal with student debt.

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Student Loans and Bankruptcy in Washington: Does Bankruptcy Get Rid of Student Loans?

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Today, the average student in the United States graduates with $29,400 in student loan debt. High youth unemployment may make it very difficult for many of these students to repay the debts that they took on when obtaining their education. As a result, young people who are struggling with monthly payments they cannot make may consider bankruptcy as a solution to address their student loan problems. Does Bankruptcy Get Rid of Student Loans? Unfortunately, no.

Unfortunately, bankruptcy in Washington, D.C. is rarely able to eliminate student loans. The law provides special protections to student loan lenders and makes it very difficult for a debtor to have student loan debt discharged. To determine if student loan discharge may be possible in your case, and for help trying to get your loans discharged, it is advisable to speak with an experienced and knowledgeable Washington DC bankruptcy attorney who can evaluate your situation.

Does Bankruptcy Get Rid of Student Loans?

Student Loans and Bankruptcy in Washington DC

Under the bankruptcy laws in the United States, debtors cannot currently discharge student loans under any chapter of bankruptcy, including the two most common types of consumer bankruptcy: chapter 7 and chapter 13. Student loans must be paid 100 percent in full, regardless of bankruptcy filing. A failure to pay student loans can result in you going into default and can result in aggressive collections efforts, including the seizure of your tax returns.

The only limited exception to the rule against discharging student loan debts is in cases where it would be an “undue burden” and a significant financial hardship to ever repay the loan. This does NOT mean that you can have debts discharged just because you cannot find a high paying job or because it turns out that your degree is not one that employers place a high value on in the job market. This also doesn’t mean that you can have student loan debts discharged if you didn’t finish your degree.

The undue burden standard is a very difficult one to meet, and typically student loans will only be eliminated in bankruptcy in the most extreme of cases. For example, if you have become totally and permanently disabled and unable to work since the time your degree was earned, this may be a rare situation in which you could have student loans discharged because repaying them imposes too great a burden. This is a very narrow exception and if you believe you fall within the exception, it is imperative you have an experienced bankruptcy lawyer representing you who can help you to convince the bankruptcy court as to why you need your student debt discharged.

Unless and until the law is changed, few people will succeed in having a student loan balance wiped clean as part of a bankruptcy proceeding. Efforts have been made by some lawmakers to try to change the rules on student loans and bankruptcy, but until this occurs, students will need to explore all options for coping with student debt they cannot pay.

To understand how student loans and bankruptcy in Washington affect you financially, call or contact Lee Legal today to schedule a free consultation with an experienced bankruptcy lawyer.

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Student Loans Jeopardize Retirement for Older Americans

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Retirement is supposed to be a time to leave behind the hassles and stress of the workforce, the reward a lifetime’s contribution to the economy and country. Although student loans are usually considered a young person’s problems, today’s retirees are increasingly facing crushing student loan burdens. Believe it or not, student loans are jeopardizing the retirements of millions of older Americans.

SENIORS ARE TAKING ON MORE DEBT, GENERALLY

Between 2003 and 2015, debt levels among older Americans more than doubled. The Federal Reserve Bank of New York reports that debt held by borrowers age 50 to 80 has increased 60% since 2003. And as reported by the AARP, a 2013 report by the National Council on Aging found that the debt levels of households headed by adults age 60 and older more than doubled from $18,285 in 2001 to $40,900 in 2013. More disturbingly, one in 25 senior households in 2013 had a negative net worth, up from one in 50 in 2001.

Student Loans Jeopardize Retirement for Older Americans

SENIOR CITIZENS HAVE MORE STUDENT LOAN DEBT THAN EVER

Americans ages 60 and over now owe an eye-popping $36 billion in student loans. Outstanding federal student loan balances for people 65 and older ballooned from about $2.8 billion in 2005 to $18.2 billion in 2013.

And more and more seniors are defaulting on those loans. About 5% of the $85 billion delinquent student loans in the U.S. is owed by borrowers ages 60 and over, and another 12% of the total is the responsibility of Americans ages 50 to 59.

student loan delinquency among older americans

If you default on a student loan, upon your retirement the government can take up to 15 percent of your Social Security, disability and retirement benefits to offset the money that’s due. Older borrowers are seeing their social security checks garnished and tax refunds seized for repayment of delinquent student loans.

Older Americans are increasingly finding it necessary to keep working past retirement age. The Great Recession has exacerbated this problem, and now many older Americans have found that a college degree led not to a prosperous career but instead to a lifetime under the shadow of debt.

PRE-RETIREES ARE FEELING THE CRUNCH, TOO

55% of pre-retirees expressed concern about burning through their assets too quickly during retirement. Apparently, they have good reason.

If today’s working-age households had the same level of student debt as those recently leaving college – an additional 4.6 percent of households would be at risk of having inadequate income in retirement. This change represents a substantial increase in the already alarming rate of households at risk – from 51.6 percent to 56.2 percent. Obviously, something needs to be done about this.

ALLOW STUDENT LOANS TO BE DISCHARGED IN BANKRUPCY

As a bankruptcy lawyer in Washington, D.C., Maryland and Virginia, I have previously advocated that student loans should be dischargeable in bankruptcy. This is especially true where student loan lenders require parents and grandparents to co-sign for their children and grandchildren. In those cases, seniors should be able to discharge those student loans, for which they received no direct benefit. Since most retirement accounts and Social Security income are exempt from distribution in bankruptcy, protecting retirement savings and income would not be a cumbersome change to the Bankruptcy Code.

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Targeted Student Loan Forgiveness Could Narrow the Racial Wealth Gap

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The racial wage gap is wider today than in it was in 1979. And according to this recent Washington Post article, student debt is exacerbating the gap. Student loans make it more difficult for to save money and accumulate assets. Targeted student loan forgiveness could narrow the racial wealth gap.

Education levels directly influence both economic opportunity and wealth creation. Earnings disparities between college and high school graduates accounted for at least 60% of the rise in wage inequality between 1980 and 2005. Not going to college is simply not an option for any young person aspiring to the middle class. Consequently, 43 million Americans across the racial and socioeconomic spectrum have taken out nearly $1.3 trillion in college loans.

The Consumer Financial Protection Bureau has also examined “the disproportionate impact of student debt on communities of color.” The CFPB specifically found that “student loan debt can trigger a financial domino effect that may prevent economic mobility.”

According to a Brandeis study cited in the Washington Post article, the median household wealth is $3,600 for young African American households. Compared that the median household wealth of just under $36,000 for young whites. Addressing the income gap will require increasing minority education quality at all levels, from primary to post-secondary.

Black Students Have a Lot More College Debt

While college education for African Americans is increasing, black households are also far more likely to have student debt. About 54% of young African Americans between the ages of 25 and 40 have student loans, compared to 39% of their white counterparts.

Targeted Student Loan Forgiveness Could Narrow the Racial Wealth Gap

Student Loan Forgiveness: Pros and Cons

There are many, many critics of plans to lessen the enormous wealth gap that exists in America today. (“Putting the blame on the 1 percent is an easy excuse for those who have failed due to poor decision-making, poor planning, lack of skills, lack of drive, lack of sacrifice.”) Yet it is difficult to discern why a racial income gap exists for college graduates.

Even less understandable is why the gap should be allowed to exist if it can be ameliorated or eliminated altogether. A recent report found that if average black family wealth continues to grow at the same pace it has over the past three decades, it would take black families 228 years to amass the same amount of wealth white families have today. That is not acceptable. The feds should direct student loan forgiveness policies toward minorities to lessen the wealth gap.

The Solution: Increase Student Loan Forgiveness for Minorities

The Department of Education needs to do a better job targeting and promoting debt forgiveness programs toward minorities. The Department of Education offers several different types of income-based repayment programs. Generally, these programs allow for forgiveness after at least two decades of payments. The plans may be skewed toward graduate students, but legally these programs are available to all.

In addition to targeted programs, allowing student loans to be discharged in bankruptcy could dramatically narrow the racial wealth gap.

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Washington D.C. Area Residents with the Highest Student Loan Debt

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New research from WalletHub compares the average student loan debt to median income of residents in more than 2,500 U.S. cities. The research allows us to see who in the Washington, D.C. area has the highest student loan debt in comparison to income.

The following table sorts D.C. area cities based on the ratio of student debt to median income. This ratio is useful because it predicts the ability of students in a specific area to repay their student loans. The table also suggests which D.C. area residents might most be struggling with the highest student loan debt burdens.Highest Student Loan Debt in Washington D.C. AreaThe higher you are on the list above, the more likely it is that you are struggling to repay your student loans. Research from Citizens Bank earlier this year revealed that college graduates aged 35 and under with student loans now are spending 18% of their income on student loan payments. Even more alarming, about 60% of student loan borrowers now expect to be paying off their loans well into their 40s.

The D.C. area has three of the top 10 most educated places in the United States: Bethesda and Potomac in Maryland and McLean in Virginia. The latter two fall very near the best situated in the debt-to-income table above. The District of Columbia recently ranked dead last on the list of highest student loan debt as percentage of income, as adjusted for cost of living.

Here’s a nationwide map of citywide debt-to-income ratios. The darker circles represent the cities with the highest student loan debt. The residents of these areas are the most overleveraged on student loan debt in comparison to income.

Washington D.C. Area Residents with the Highest Student Loan Debt

The Department of Education reports that approximately 22 million Americans have student debt. An estimated 9.6 million (44%) of student loan borrowers are either delinquent on payments or have stopped paying altogether.

Solutions for Students

Borrowers with federal student loans can apply for specific income-driven repayment (IDR) plans. An IDR plan might allow you to lower your monthly payment to an affordable amount based on your monthly income. Unfortunately, the CFPB recently found servicers engage in unfair practices of denying IDR applications that should have been routinely approved. Moreover, in many cases, IDRs do not produce significantly lower monthly payments.

You can also use a Chapter 13 bankruptcy to delay, manage or reduce your monthly student loan payments. In Chapter 13, you do not have to repay your student loans in full. You will still owe any unpaid balance on the loans, however, once your case is complete. The Chapter 13 repayment schedule often results in much lower monthly student loan payments.

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Student Loans are Holding Back Home Ownership

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America’s student-loan debt grows by $2,726 every second. Total student loan debt in the United States has topped $1.3 trillion, second only to mortgage debt. Nearly one-third (30%) of Americans know someone who has delayed the purchase of a home because of student loan debt. And more than half of those expect that delay to last longer than five years. Student loans are holding back home ownership.

Over half (53%) of potential home buyers with student loan debt said the debt was somewhat or very much an obstacle to buying a home. And 71% of student loan borrowers who don’t own a home cite their college loans as the main prohibitive factor.

In its 2016 Student Loan Debt and Housing Report, the National Association of Realtors addresses the growing impact of student loans on home ownership. The report contains some interesting findings.Student Loans are Holding Back Home Ownership

Student Loans are Holding Back Home Ownership

Debt delaying potential home buyers is highest among those with more than $50,000 in student loan debt about eight in ten believe it is delaying their ability to purchase a home.

Making a student loan payment every month reduces income and diminishes borrowers’ ability to save for a down payment. Student loans also make it more difficult to qualify for a mortgage, because the loans increase borrowers’ debt-to-asset ratios.

Now more than 40% of the nearly 22 million borrowers with federal student loans have defaulted on their payments. Default on student loans makes obtaining a mortgage much more difficult.

The home ownership rate for borrowers 35 and younger has slumped from 44% at the height of the housing boom to 34% today. Rising interest rates and increasing home values will likely slow this rate even further.

Dischargeability of Student Loans in Bankruptcy

While there have been some recent wins, discharging student loans in bankruptcy is extremely difficult.

College graduates are 27% more likely to own a home than those with just a high school diploma. But for those saddled with enormous student loan burdens, home ownership remains out of reach.

Student loan debt directly impacts on consumer spending on housing, including mortgages. There exists no legal or logical reason to treat private student loans differently in bankruptcy than other types of unsecured credit. Allowing the discharge of student loan debt in bankruptcy would clear the way for millions of potential homeowners.

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What Happens to Student Loans in Chapter 13 Bankruptcy?

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Student loans remain valid debts after discharge in either Chapter 7 bankruptcy or Chapter 13 bankruptcy. However, paying your student loans in Chapter 13 bankruptcy allows you some breathing room to pay your other debts. What Happens to Student Loans in Chapter 13?

What Is Chapter 13?

Chapter 13 bankruptcy is sometimes called the “wage-earner’s bankruptcy.” Many people who do not qualify for Chapter 7 instead file for Chapter 13. Others want to repay arrearage on missed mortgage payments or other secured debts. Chapter 13 of the bankruptcy code allows you to spread payments out over five years at fixed interest rates.

Certain unpaid, nondischargeable debts, however, “survive” the Chapter 13 discharge. Unfortunately, student loans pass through the Chapter 13 discharge intact. Yet Chapter 13 bankruptcy remains a good option when your student loan payments are so high that you cannot pay your other debts and expenses.

Chapter 13 Bankruptcy Does Not Discharge Unpaid Student Loans

Chapter 13 bankruptcy will not discharge either your public or private student loans. The bankruptcy code defines student loans as nonpriority unsecured debts. You will still owe any unpaid student loan balances after you receive your bankruptcy discharge.

The only way to legally discharge student loans in bankruptcy is to prove that paying them back would be an “undue hardship.” As I have previously written, the undue hardship test is a virtually impossible standard to prove. Undue hardship (otherwise known as the Brunner test) requires that, despite good faith efforts to repay your loans, you cannot maintain a minimal standard of living, and this condition is unlikely to change in the future.

Private student lenders are much more aggressive in debt collection than either state or federal lenders. At the same time, private student lenders sometimes settle for less than what is owed rather than face Chapter 13 payments. In some cases, with student lenders, you can even employ the bankruptcy threat. Federally-backed loans cannot settle for less than what is owed.

Reduce Your Payments on Student Loans in Chapter 13 Bankruptcy

You might still want to consider repaying your student loans in Chapter 13 bankruptcy alongside other nonpriority unsecured debts. During the repayment period of three to five years, Chapter 13 bankruptcy allows you to pay your student loans with reduced monthly payments.

While you are repaying through the bankruptcy court, student lenders are prohibited from taking any collection actions against you. Student loans continue to accrue interest during that time.

And while your student loans will pass through the bankruptcy, Chapter 13 discharges any unpaid amounts on other unsecured debts. So when your case is complete, you should have much more disposable income. You can use those extra resources to pay off your remaining student loan balances more aggressively.

Student Loans After Chapter 13 Bankruptcy

Once you receive your Chapter 13 discharge, you will want to start proactively rebuilding your credit. That also means taking care of any nondischargeable debts, including taxes and student loans.

Contact the student loan servicer and make arrangements to pay them. Once you exit bankruptcy, your creditors may resume collection efforts and can also report any defaults on your credit report. So be sure to have a plan in place to get these loans back on track after bankruptcy.

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Is There a Statute of Limitations on Student Loans?

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A statute of limitations sets the maximum time after you default on a debt within which the creditor can sue you. Statutes of limitations protect defendants from plaintiffs who do not pursue legal actions with reasonable diligence. The Department of Education recently found that more than 40% of borrowers have stopped making payments on their federal student loans. And many borrowers have never made even a single payment. So is there a statute of limitations on student loans?

Is There a Statute of Limitations on Student Loans?

 

No Statute of Limitations on Federal Student Loans

Federal student loans do not have a statute of limitations. You can be sued on federally-backed student loans upon default, or many years later. There is no statute of limitations on federal student loans.

Federal student loans include Direct Loans, both subsidized and unsubsized; Federal Perkins Loans; and Direct PLUS Loans, including Parent PLUS Loans. There is no statute of limitations on student loans of these types.

Federal student loans do not just disappear if you ignore them.

Private Student Loans and State Student Loans

Individual state statutes of limitations do apply to private student loans and state student loans. Thus, these types of student loans do have limit within which the lender must sue you to recover. The statute begins to run on the date of your latest default. Statutes of limitations differ from jurisdiction to jurisdiction.

The statute of limitations for private or state student loan debt in the District of Columbia is three years. The statute of limitations for student loan debt in Virginia is five years. Like in D.C., the statute of limitations for student loan debt in Maryland is three years.

Once the statute of limitations has run on a loan, it becomes much easier to settle for less than what is owed.

Statute of Limitations on Student Loans

When you get sued, you can no longer ignore your student debt. You must take a proactive approach to avoid garnishment or levy. Moreover, even though a lender may not sue you, that does not negate the debt. The student loan lender, or its servicer, may still attempt collection against you through other means.

Reach out to your lender and arrange for a suitable repayment schedule. If you are unable to make payments, attempt to obtain forbearance or deferment. In certain situations, it makes sense to simply ignore a debt for some time. Student loans cannot be ignored, however, because they never go away.

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Student Loans and the Means Test in Chapter 7 Bankruptcy

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The Chapter 7 “means test” determines whether your income qualifies you for a Chapter 7 bankruptcy. Otherwise known as the Chapter 7 Statement of Your Current Monthly Income, the means test prevents debtors with higher-than-median income from filing Chapter 7 bankruptcy. The interaction of student loans and the means test often requires careful consideration to maximize the effects of the bankruptcy discharge. Student Loans and the Means Test in Chapter 7 Bankruptcy

Qualifying for Chapter 7 with Student Loans

If your household income exceeds the median income of your jurisdiction, then you fail the initial means test. In that case, the Bankruptcy Code gives rise to a presumption that you are are abusing the bankruptcy process. The presumption is that you should file a Chapter 13 instead of a Chapter 7. While Chapter 7 entails the quick and simple elimination of debts, Chapter 13 requires an extended repayment plan.

Unfortunately, the Chapter 7 means test does not allow deductions for student loan payments. Because student loans can also be paid through a Chapter 13, monthly student loan payments may not be used to reduce disposable income in the Chapter 7 means test. Student loan payments, no matter how massive, do not affect your eligibility for Chapter 7 on the means test.

On the other hand, if your student loans dwarf the rest of your debts, then you may not have to complete the Chapter 7 means test at all. If you incur your student loans for a professional degree, for instance, then those loans are considered “business” debts. Debtors with primarily business debt (as opposed to consumer debt) need not complete the means test. See 11 U.S.C. 707(b).

Finally, student loans may not be listed as “special circumstances” on the means test as provided for by 11 U.S.C. 707(b)(2)(B). Most courts interpret the “special” circumstances section of the means test to require a debtor to prove “extraordinary” expenses. Student loans are not considered extraordinary expenses for means test purposes. Thus, neither the nondischargeability of the student loans nor the long-term obligation to pay them renders student loan special enough for the Chapter 7 means test.

Student Loans and the Means Test in Chapter 7 Bankruptcy

If you experience difficulty attempting to balance your budget with large student loan payments, consider consulting an experienced bankruptcy attorney. The issues are complex, and still evolving, but there are solutions. Talk it over and assess your options before you make any big decisions or just give up altogether.

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How Do Student Loans Affect Taxes?

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Student loans affect taxes in ways very different from other long-term debt obligations. Taxes are an inevitability, as noticed by one of our founders.

Our new Constitution . . . promises permanency; but in this world nothing can be said to be certain, except death and taxes.

Benjamin Franklin, 1789

For many Americans, another inevitability is student loans. Here are four key ways in which student loans affect taxes.How Do Student Loans Affect Taxes?

Form 1098-E Interest Deduction

If you pay more than $600 in interest on student loans, then you may qualify for a student loan deduction on your taxes. You must also make less income than certain threshold amounts. And you can only deduct up to $2,500. Your filing status and other exemptions also determine your eligibility for this deduction.

Scholarships or grants may be taxable

If you receive a grant, scholarship, or fellowship, those amounts may be taxable. You need not disclose as taxable income those amounts used for tuition and fees, or for required books, supplies, and equipment. But amounts used for room and board, travel, and optional equipment are taxable.

Forgiven student loans are taxable income

Department of Education debts are rarely forgiven. Occasionally, however, private lenders forgive student loans they deem uncollectable. Forgiven student loans are considered taxable income. The student loan creditor will send you an IRS Form 1099-C for Cancellation of Debt. You must include the amount forgiven as part of your gross income on your tax return.

Offset of your tax refund

If you default on your student loans, the government may “offset” your tax refund against the loans. That means that the IRS will seize your refund and send it to the Department of Education. Notice will be sent to you by mail. To avoid offset, get your loans out of default.  Rehabilitate your loans by calling your lender and working out a repayment plan. Bankruptcy also prevents offset of your tax refund for student loans.

Do Your Student Loans Affect Your Taxes?

Talk to a certified personal accountant if you are not sure whether your grant is taxable. Also consult a CPA if you believe you may qualify for a deduction for the interest paid on your student loans. On the other hand, consult a tax attorney if your lender forgives your student loans or attempts to offset your tax return.

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Washington DC Has the Most Student Debt in the Nation

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Washington DC is a great place to live. And the residents who live here are some of the most educated in the nation. But as might be expected, Washington DC also has the most student debt in the nation, too.

The average student loan debt per borrower in Washington DC is $39,832.12. That’s the highest in the nation. Maryland came in second (worst) at $32,567.41 average student loan debt per borrower.

Washington DC Has the Highest Outstanding Student Debt Per Borrower

The District of Columbia also ranks last in highest student loan debt as percentage of income, adjusted for cost of living. D.C. also has the least availability of grants in the country.

Moreover, WalletHub finds that Washington DC ranks dead last in the nation on a key measure of student loan debt and homeownership. This can be partly explained by how expensive it is to live here. In 2016, the average resident of Washington DC earned $82,950, yet paid a 5.86% tax rate and paid $4,858 on D.C. income taxes.Washington DC Has the Most Student Debt in the NationRace further exacerbates the problem of student loans in the District. The Brookings Institution recently found that, nationally, black graduates have nearly $25,000 more student loan debt than white graduates four years after graduation.

Student loan debtors in the District need an advocate.

Washington DC Has the Most Student Debt in the Nation — And No Ombudsman

In late 2016, Washington DC enacted legislation creating a student loan ombudsman. To date, that position remains unfilled. Community activists blame the Department of Insurance, Securities and Banking for requiring the position to also oversee housing foreclosures, which are almost but not entirely completely unrelated to student loans. When the administration finally fills the position, the ombudsman will monitor student loan servicer activity within the District; field complaints about student loan providers and servicers; and educate District constituents on their repayment options.

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