More than 44 million borrowers in the U.S. owe approximately $1.5 trillion in student loan debts, according to 2019 statistics from the Institute of College Access and Success. Recent college graduates make up many of those who are in debt. For instance, 2017 graduates owe an average of $28,650. Young professionals are particularly vulnerable to falling behind on student loan payments because they likely are not earning enough income to make payments and support themselves. At what point should you file for bankruptcy in response to your student loan debt? There are several situations in which bankruptcy may be one of your strongest options for solving your student debt crisis:
- You Have Defaulted on Your Loan: Your lender will consider you in default of your student loan if you have not made payments in 270 to 360 days. At that point the lender may file a lawsuit against you, seeking full recovery of what you owe. Your lender does have the ability to garnish your wages. Filing for bankruptcy will put an immediate stay on the lawsuit, as well as wage garnishment, and give you time to consider your options.
- You Are Running Out of Repayment Options: Lenders, particularly those with federal student loans, may offer repayment and forgiveness programs that will reduce what you owe or temporarily lower your payments. However, these programs may be insufficient if your loans are high or you lack the income to make even minimum payments. With these options exhausted, bankruptcy may be your only way to restructure your total debt obligations, which could give you the ability to get on track with student loan repayment.
- Your Student Loans Are Causing Financial Hardship: In order to discharge your student loan debt at the end of your bankruptcy, you will need to show that making payments will cause you undue hardship. Using the Brunner test, a court may consider you eligible for discharge if you could not maintain a minimal standard of living while making payments, are unlikely to improve your financial situation for the duration of the repayment period and have made good-faith efforts to keep up with payments. However, this a very high burden to meet and is rarely met.
- You Have Other Debts: Your student loans might be just one source of debt, along with credit card debts and car loan payments. Even if you do not qualify to discharge your student loans, bankruptcy could allow you to discharge other debts and leave more money available for student loan payments.
Contact a Colin County Bankruptcy Lawyer
Approximately 2.9 million Texas residents owe $85.4 billion in student loan debt, which is the second-highest for any state in the U.S. Most of them will not default on their student loans, but it can be difficult to keep up with loan payments and the increasing cost of living. If you are falling behind on payments with no signs of relief, a Frisco, Texas, bankruptcy attorney may be able to help. Call 214-618-2101 to schedule a free consultation with The Page Law Firm, so you can determine whether bankruptcy is the right solution for you.