Your house. A business you started. That car that you love. Your wedding ring. Medical bills associated with a catastrophic event. These are all things that you can file for bankruptcy. However, if you’ve ever asked yourself “Can I file for bankruptcy on student loans?” the simple answer is “No”.
How does bankruptcy work in the US?
Bankruptcy is a legal procedure that permits businesses and individuals to begin afresh by discharging all or some of their unsecured debts. The major types are Chapter 7, Chapter 11 & Chapter 13. There are other types (Chapter 12), but for the understanding of how they work with student loans, we’ll stick with these three major types.
This is what most people think of when they think of filing for bankruptcy. When Chapter 7 is filed, a trustee is appointed by the court to determine which assets will need to be sold and which creditors to pay off in what order. When the trustee has sold as many assets as possible, the court will “discharge the remaining debt”. This basically means that the debtor will no longer be legally obligated to pay the incurred debt. In 2005, the US Congress passed a law making it more difficult to get into Chapter 7 bankruptcy. If your income is over a certain threshold, you will more than likely have to file for Chapter 13 or you are not allowed to declare bankruptcy at all. Chapter 7 can be filed by individuals or businesses alike.
Chapter 13 can be thought of more as repayment bankruptcy versus discharge. The debtor and the trustee work out a plan where the debtor pays off the debt between 3-5 years. The debtor may sell assets, work for income or continue whatever business the debtor had in order to meet the financial repayment plan. The main requirement is that the plan must be feasible (although that type of subjective standard leaves a lot of discretion to the bankruptcy judge). Chapter 13 can only be filed by individuals.
Chapter 11 is mostly for businesses. However, there are cases where the extremely wealthy may also have to file Chapter 11 instead of Chapter 7. Similar to Chapter 13, Chapter 11 makes the debtor must come up with a repayment plan. Unlike Chapter 13 though, the plan must be approved by creditors vote (all of them – let me repeat that – all of them). In Chapter 11, the debtor is also now the trustee. That means that many of the decisions of who and what to pay as well as when solely falls on the decision of the debtor (though it has to be approved by creditors). The judge still retains power over the debtor in Chapter 13.
Be aware if you do decide to file bankruptcy, your credit score will probably drop significantly after defaulting on financing.
Can I file for bankruptcy on student loans?
Student loans are a necessity to secondary education for millions of students. These very loans that have helped drive education and economic growth for the country are some of the strictest loans for borrowers. If you know anyone who has tried to rid themselves of student loans through bankruptcy, they will probably tell you that you have a better chance of hitting the jackpot lottery. While there are dozens of methods that BYE Student Loans can teach you to forgive, delay, cancel, or accelerate repayment on student loans, eliminating your loan through bankruptcy is nearly impossible. In order to do this in a court of law, students must prove that they endured ‘undue hardship,’ a bar set so high that almost no one has been successful.
One ironic sympathizer to bankrupt student loan holders is President Trump himself, who has employed legal bankruptcy tactics within his businesses in the past to ultimately benefit his company. This same latitude that is allowed in the business world has no merit for student loan holder. As a result, the Trump administration has announced that they plan to address this dilemma, by loosening the definition and interpretation of ‘undue hardship.’ While details need to still be finalized, this would be a win for all student loan holders that have come across troubled financial times and need to employ bankruptcy. While this still would not be a good situation for anyone going through bankruptcy, it would be slightly better than the current scenario. After all, why would we not allow our student and future leaders to use the same bankruptcy laws that large multinational companies can employ?
Remember, despite these potential changes, bankruptcy on a whole would be a bad situation for any individual and should be employed only as an absolute last result. BYE Student Loan Debt can help you determine a plethora of options (forbearance, extended repayment, forgiveness, etc) to avoid this scenario and save money or time on your student loan repayments!
Learn More About How to Get Rid of Your Student Loans Here
The student debt problem on its own is a huge problem that affects millions of graduates and continues to grow exponentially every year. Behind the student loan epidemic is the behavioral effect on young adults as a result of their significant debt position. “Forty percent [of borrowers] said [student] debt is forcing them to delay saving for retirement. Forty-two percent said it is making them delay a home purchase, and 55% said it is preventing them from saving for emergencies. Furthermore, 25% are putting off having a child, and 20% are delaying getting married.” 1 It’s time to take control of your student loan debt before it controls you.
It is clear that student loans are making a profound effect on the decision making of young adults, which thereby has a lasting and large effect on the economy as a whole. Delaying retirement savings, purchasing a home, or having a family are extremely important life decisions that millennials and other young adults are putting off. Not only does it adversely affect their future, it also is a negative for the US economy, as the more people who have savings to spend, the more our economy grows. And for those that think they can simply kick the can down the road on student loan debt, think again. Not only will student debt delay major life events, but it could lead to a lifetime of debt as shown by the recent statistics showing an eightfold increase in student loans among Baby Boomers.2
By using BYE Student Loan Debt’s interactive book and website calculator tools, former students can proactively address their student loans to prevent student debt from controlling their life!
Learn More About How to Get Rid of Your Student Loans Here
- [https://www.fastcompany.com/40421239/more-baby-boomers-are-drowning-in-student-loan-debt-and-no-one-knows-how-bad-it-will-get ]
Ever wonder how student loans actually work? Most of us have them, but there’s more than meets the eye.
Secondary education has become increasingly important for young professionals and increasingly expensive over the last couple of decades. As a result, it has become imperative that students understand the student loan process which seemingly becomes more complicated with time.
In short, there are federal loans and private loans. Federal loans are provided by the US Department of Education through federal funding in the form of Direct Subsidized/Unsubsidized loans, Perkins loans, PLUS loans, or Consolidation loans. Students apply for these federal loans by filling out a FAFSA form for student aid application, which allows you access to scholarships, grants, work-study programs, and other financial assistance along with federal loans if needed. Federal student loans provide a fixed interest rate (varies based on the type and when it is granted) and depending on the type of loan you receive the government might pay interest that accrues until you graduate. All of these federal loans generally include a 6 month grace period to allow students to get on their feet after graduating before making loan payments.
If you have a federal government loan, there are various service providers that manage your loan account and act on behalf of the government to collect payments after graduation. With federal government loans, there are numerous repayment options based on an individual’s financial situation, but the standard plan defaults to a 10-year repayment plan in equal monthly installments. The federal government also has numerous options to forgive, cancel, forego or delay student loan payments based on a number of programs. For example, by enrolling in the Student Loan Forgiveness program as a ten-year employee of qualified, not for profit organizations, you can apply to have your loans completely forgiven. Additionally, the federal government usually reduces your interest rate by 0.25% by consolidating all your loans and setting up automatic payments through your service provider.
If you are unable to qualify for student loans or need additional funds that the government will not provide, additional private loans are your only option through a private loan application (but should be used as a last resort). A number of private companies and banks provide loans to students similar to a car loan or mortgage. In general, these loans have higher interest rates compared to federal loans and they can have either fixed or variable interest rates. It is generally a good idea to try and get a cosigner (backer of your loan) for these types of loans in order to reduce your interest rates. Usually, these loans are higher interest and can be variable with lesser terms compared to federal government loans, as private companies see college students with no income as highly risky borrowers. Additionally, private loans rarely have flexible repayment options, forgiveness options, grace periods, or interest rate payment forgiveness.
Understanding the student loan process is the first step in saying BYE to your student loan problems and hello to your financial freedom!
If you have paid attention to politics at all in the last couple decades you are probably aware of politicians squabbling over the debt ceiling a few times a year. The debt ceiling was imposed by congress, in theory, to prevent excessive spending and ensure the US government can pay all of its bills. It is no different from a head of household shutting off expenses towards the end of the month or year when outlays become bigger than inlays. The difference is, the US government works in budgets of trillions versus a typical household of hundreds and thousands.
In modern politics, the debt ceiling does little to nothing to curb US government spending. Instead, it is used to hold the government’s ability to pay its bills hostage to some political hot point. For the upcoming debt ceiling that is about to expire in February, that topics is immigration, which clearly has nothing to do with the debt ceiling. However, the minority party (Democrats )are using the debt ceiling as a way to force a discussion and legislation around immigration. Republicans performed similar actions when they were in the minority power a few years ago.
One thing that is lost in all of this discussion is that US government debt continues to balloon at staggering rate to over $20 trillion in 2017 and continues to rise in 2018! All of this arguing about the debt ceiling year-over-year does nothing to curb our continued debt increase, but instead serves to distract from the underlying issue. This stat is very similar to what is currently going on with student loan debt, which not stands at nearly $1.5 trillion! If the government debate on the debt ceiling is any indication of our current politics, there is almost no chance politicians will try to tackle this growing student loan debt epidemic. While normal Americans can do little to effect the US government debt ceiling, individuals can tackle their own debt challenges with some education, diligence, and perseverance.
BYE Student Debt can help individuals tackle their student loan challenges through their educational resources and calculator tools. By creating a budget, setting a strategy and goal, reconsolidating certain loans, and prioritizing a payoff schedule, students can save thousands in interest payments and years of debt free living. Say BYE to debt ceiling politics and hello to a life without student loan debt!
Interested to learn about what you can do with your student loans?
Student loan debt has become an epidemic that plagues 70% of graduates, with an average burden of $40,000 per student. In the US alone, student debt has ballooned to $1.4 trillion dollars and has doubled since 2008, eclipsing the total outstanding debt of credit cards and car payments. Over the last 30 years, while household income has increased 20%, student loan debt has increased by 250%!
While these statistics on their own are scary, what is more terrifying is the crushing impact this has on the economy and students’ futures. On average, student debt is causing graduates to delay homeownership for 5 years, reduce retirement savings by approximately $500,000, postpone marriage and children, and put-off well deserved vacations and other life events. Perhaps most frightening of all is that 3,000 graduates are defaulting on their student loan payments every day and more than 10% are delinquent 90 days on their payments. As students enter the 2017-2018 year, borrowers will see the interest on their loans jump an additional 0.75%, increasing the cost of carrying debt further for future graduates.
Think this is just a millennial problem? Think again. Over 15% of graduates continue to make student loan payments after 50 and student debt has quadrupled in the last 10 years among soon to be retirees over 60 years old. It is clear that student debt is affecting all of us in a negative way.
Our personal student debt experiences and the problem outlined above provided our motivation to start a company to tackle this epidemic. Our names are Ross Hornish and Dan Mendelson and our company is called BYE Student Debt LLC. Together we have written a book and created an interactive website designed to help graduates eliminate their student loan problems. Our hope is to provide personalized education so graduates can most efficiently payoff their loans and gain financial freedom, no matter what their situation. We look forward to sharing this product and hearing all of your experiences.
Dan & Ross