When you are looking into college options and working out arrangements to pay through student loans, you may not expect the financial hit that you take years later when it comes time to repay your student loan debt. Many students sign up for student loans without fully considering the consequences, as they are eager to get started on the education that will lead them to a lucrative career. Unfortunately, the job market does not always provide the opportunities many graduates expect.

Of course, the lack of a high-paying position does not eliminate the obligation to pay back student loans. You will still owe the full amount due, regardless of the fact that you are not earning the salary to make payments. There may be options through the lender to buy time, lower payments, and extend the duration, but the debt will remain. Plus, you incur interest and late fees as the balance goes forward.

If you are struggling with student loan debt, bankruptcy may be an option. There are many benefits to resolving your outstanding balance through Chapter 7 or Chapter 13, but the process is complicated. You gain an edge when you retain an Athens, GA, bankruptcy lawyer for help, enabling you to experience multiple advantages.

 

Background on Chapter 7 Bankruptcy in Athens

To better understand how student loan debt is treated in bankruptcy, an overview of the different proceedings is useful. One type of bankruptcy for individuals is Chapter 7, in which you can discharge eligible debt. You emerge from the process debt-free, but the financial hit to creditors is significant. Therefore, bankruptcy rules aim to ensure that only debtors who really need help will qualify. There are two tests to determine eligibility for Chapter 7:

1. You automatically qualify if your earnings fall below the state median income level.
2. You could also be eligible if your income exceeds this threshold, but you must satisfy the Means Test. This test reviews your income after reducing it by the amount you pay for certain monthly bills.

Besides discharging your debt, a key goal of Chapter 7 bankruptcy is to pay back creditors when possible. The bankruptcy trustee may do so by liquidating eligible assets, but you can protect your home, vehicles, and other items through exemptions. In most cases, the trustee will not sell any assets that do not bring a reasonable profit.

 

Summary of Chapter 13 Bankruptcy Rules in Athens

Many people who do not qualify for Chapter 7 will resort to filing Chapter 13 bankruptcy, which essentially provides for one requirement: You must be employed and make an income to qualify. However, other individuals will opt for this type of case because of an important factor: Your assets are not subject to liquidation by the bankruptcy trustee in Chapter 13.

Your qualifying debts are discharged through Chapter 13, but the core component of the case is a debt repayment plan. During the initial proceedings, you propose a plan to pay an agreed amount to satisfy a percentage of what you owe to creditors. You will not end up paying the entire balance because the monthly payment is calculated according to what you can afford. This is why you need a source of income to qualify for Chapter 13.

Your debt repayment plan will last 3 to 5 years, depending on your circumstances. At the end of this time period, your case ends, and your eligible debts are wiped out. Creditors cannot attempt to collect any remaining balances after Chapter 13 discharge.

 

Benefits of Filing Bankruptcy for Student Loan Debt in Athens

There is the myth that you can never discharge student loan debt in bankruptcy, but it is possible in the most dire financial situations. The process is extremely complex and requires a separate proceeding, so you will only qualify under particular circumstances. However, to help you appreciate that it could be worthwhile to go through the process, you should review some of the benefits.

• In Chapter 7, you may be able to discharge student loan debt entirely. Fortunately, if you do meet the strict criteria to wipe out student loans, you will certainly also qualify for the income requirements under Chapter 7 rules. Keep in mind the potential for liquidating your assets, however.
• With Chapter 13, you can work your student loan debt into the debt repayment plan. You will pay a reduced monthly payment during this time, but you will be responsible for the balance at the end of the 3 or 5 years.

Also, there is a benefit that will affect you right away after filing, and it should ease some stress. When you file your bankruptcy petition, the court imposes an automatic stay on creditor efforts to collect debt. They cannot contact you, threaten or file a lawsuit, garnish your wages, or take other legal action for the duration of your case.

 

How Bankruptcy Laws Apply to Student Loan Debt

The myth that you cannot discharge student loan debt exists primarily because it is such a challenging process that involves multiple steps. First, you would file for Chapter 7 to discharge the debt. After liquidating assets, if any, your case will come to a close, and you will receive a discharge order. However, the court document will not include the discharge of student loan debt because the default rule is that you cannot eliminate it.

Therefore, instead of going through the typical steps of bankruptcy, you will need to request a hearing through a separate proceeding on the side. Your bankruptcy case is essentially on hold while the other case termed an adversary proceeding, takes place. The point is to show that you cannot pay your student loans, as described below. After a determination through this adversary proceeding, the matter returns to the bankruptcy court to be included or excluded from discharge.

 

Adversary Proceeding for Student Loans in Athens Bankruptcy

In the case that is separate from your bankruptcy matter, you will need to prove that you cannot earn sufficient income to pay your student loan debt. The hearing is similar to a trial, and the court will consider the following:

• You are under an undue hardship that prevents you from paying because you would be at the poverty level if required to do so. Plus, you need to show that your financial situation will persist throughout the loan and that you have made a good-faith effort to pay.
• After reviewing the totality of the circumstances, the court may decide that you cannot repay your student loan debt because of undue hardship.

Discharging Other Debts in Bankruptcy

There are benefits to filing Chapter 7 or Chapter 13 despite your student loan debt. You get a fresh start after your case is over, especially because there are many different types of debt that you will be able to eliminate. Examples include:

• Credit card debt;
• Lines of credit and personal loans;
• Medical bills;
• Payday loans; and,
• Many other types of unsecured debt.

When you eliminate these debts, the advantage with respect to your student loans is that you have more cash flow to pay. Remember that there are also debts you cannot discharge under any circumstances. For instance, you are barred from wiping out debt related to alimony, child support, and many types of taxes. Plus, you cannot discharge secured debts, such as your mortgage, which uses your home as collateral for the loan.

Legal Help from Athens Bankruptcy Lawyer

Though the details are very different, some steps for Chapter 7 and Chapter 13 are similar. When you intend to request a separate adversary proceeding to prove undue hardship for purposes of student loan debt, the bankruptcy case will be interrupted. However, you can trust your bankruptcy attorney for assistance with:

• Gathering, reviewing, and organizing your financial documents, including all paperwork on assets, debts, and income;
• Advising you on whether Chapter 7 or Chapter 13 is a suitable solution for achieving your goals;
• Preparing the bankruptcy petition and relevant schedules;
• Helping you develop the Chapter 13 debt repayment plan;
• Advocating on your behalf during the meeting of creditors, during which you will be asked questions about your petition and financial situation; and,
• Managing all tasks to finalize your case and obtain the order of discharge.

Post-Bankruptcy Outlook

After you go through bankruptcy, there are consequences for your credit report. A Chapter 7 case will remain part of your credit history for ten years, and a Chapter 13 bankruptcy stays for seven years. Plus, your credit score will dip when filing for bankruptcy.

However, you can begin rebuilding credit immediately and working toward a brighter financial future. You are not weighed down by debt, so you have income to save and spend wisely. It is possible to obtain a secured credit card in which you deposit money as collateral, and your track record of payments for utilities will benefit your credit rating. Eventually, you will qualify for loans at reasonable interest rates. What you learned through mandatory credit counseling sessions will help you manage credit wisely.

Discuss Student Loan Debt with an Athens, GA, Bankruptcy Attorney

It is helpful to know the benefits of filing for bankruptcy for student loan debt, and the best way to take advantage of them is to retain legal counsel for assistance. Our team at Morgan & Morgan, Attorneys at Law, P.C. is prepared for the challenges with resolving student loans through Chapter 7 or Chapter 13, so you can trust us to seek the best possible outcome. To learn more, please get in touch with our firm to set up a consultation with a skilled Georgia bankruptcy lawyer.

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