Student Loans: IDR, consolidations & discharge through Bankruptcy

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Student Loans: IDR, consolidations & discharge through Bankruptcy

student loan interest growing over time

When COVID began to sweep across the nation, it left a hideous cycle of devastation in its path. Even those who were lucky enough to escape illness were financially shaken due to the pandemic. Those who had student loans found themselves struggling to stay afloat as they faced reduced work hours, skyrocketing prices, and hardship in paying bills. Millions would have had to choose between paying rent or covering their student loans if the government did not put into place a temporary halt to student loan payments. Unfortunately, this freeze is threatening to be ended in May, and those with loans find themselves simply waiting on the ball to drop and shatter their financial states. Thankfully, things don’t have to look so grim!  

There is Hope doe Studet Loan Borrowers

Rather than simply biding your time, trying to tread water as you wait to win the lottery before the student loan halt ends in the spring, there is hope for you to get back on your feet financially right now! While COVID may have taken a lot from our financial security, there are still several ways for you to take charge of your student loan payments before the government halt ends. While it’s great to have a halt to payments, it is even better to have a reduction in debt payments or forgiveness of them.

What is Student Loan Consolidation? 

A debt consolidation is one way that you can work to make your student loan payments more manageable. Through consolidation, you can work to get your payments lowered into more manageable bills, while still getting the entire loan paid off in as little as three to five years. However, if you have multiple loans at differing interest rates, you may lose the benefit of the lower interest rate loan and potentially being able to pay off your loans in the order you choose. 

What is Income-Driven Repayment or IDR? 

Likewise, an IDR plan is similar to a consolidation but works for those with federal student loans who are faced with a low income. If the COVID pandemic forced you to have fewer hours, lose your job, or experience loss of work opportunities, then you may be eligible for an IDR plan. This plan works to adjust your payments to a specific percentage of your income – never exceeding the original payment amount set before starting the plan – and stretch your payments out over a 20 to 25 year period. Likewise, if your income increases so do your payments. 

Bankruptcy and Student Loans

When we think of being in bad financial strains, turning to bankruptcy is one of the most popular ways to regain control of one’s money. Unfortunately, many students write off bankruptcy since it’s known that student loans are difficult to get rid of. Typically, bankruptcies don’t do away with money owed through student loans, child support, or federal taxes. However, this isn’t necessarily the case in every situation and there are ways through bankruptcy to make your debt – including your student loans – more manageable. 

Student Loans in Chapter 7 Bankruptcies

Chapter 7 bankruptcy works to liquidate assets and pay off debts, doing away with a debt load completely. While this is great, it doesn’t typically cover student loans. However, a certain claim of undue hardship can help to get student loans wiped away. Through an undue hardship claim, you present the courts with proof that you can’t continue to maintain a minimal standard of living while still paying off debts and that there is little reason to expect your financial situation to change soon. While it is a process to claim you have undue hardship, it’s not impossible with 40% of all claimants getting their student loan debt completely discharged. With the pandemic changing the way that all of us live – it’s not hard to prove that you have had a significant undue hardship. 

How Does a Chapter 13 Bankruptcy Help with Student Loans?

If a Chapter 7 bankruptcy won’t work for you, then you can still gain some relief through a Chapter 13 filing. In a Chapter 13 bankruptcy, your student loans will be included in your payment plan – but put lower on your list of responsibilities – and you won’t have to worry about debtors hounding you during the time of your bankruptcy payments. While a Chapter 13 bankruptcy can be a great way to recover your finances without losing any of your assets, it is tricky to establish when you have student loans without the help of an experienced bankruptcy lawyer. During a Chapter 13 payment plan, your student loan interest will continue to rise, and you may find yourself left to pay it all off once you come to the end of your payment plan with all your other bills.    

What To Do About Student Loan Debt?

If you feel like you’re simply trying to survive the pandemic, then you probably know what it feels like to be significantly behind on payments. Rather than trying to simply ignore your student loan payments until they are once again due, now is the time to get a plan for how to move forward. Don’t let COVID destroy your financial future! 

Contact our offices today for a free consultation for student loan debt relief – we can help you discover the best way to proceed with your student loans and debt. Our local bankruptcy lawyers will look over your situation and determine if you are suitable for bankruptcy, debt consolidation, IDR….or all three!  

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