Student Loan Bankruptcy in Springfield, MA

Discover the Secrets to Managing Student Loans with Confidence

Dealing with student loan debt can be extremely tough, especially for people experiencing money difficulties. If you live in Springfield, Massachusetts, thinking about using bankruptcy to get relief can be complicated. Knowing how student loan bankruptcy works is crucial if you are considering it to solve your money problems.

This post is here to help you understand the student loan bankruptcy in Springfield, MA, and the connection between the two. Whether you have federal or private student loans, figuring out if you can reduce or change your debt through bankruptcy means you should know about the laws, recent changes, and other options. This guide also covers those and focuses on what is crucial for Springfield residents so they can make wise choices about their financial future.

Short Summary: 

• Bankruptcy is a legal process offering individuals a fresh financial start when overwhelmed by debt, involving an assessment of assets and liabilities.
• Chapter 7 (liquidation) bankruptcy involves selling non-exempt assets to repay creditors, potentially discharging unsecured debts.
• Chapter 13 (reorganization) bankruptcy creates a repayment plan over three to five years, allowing individuals to keep their property.
• Student loans assist in funding education, with federal and private loans offering different terms.
• Discharging student loans in bankruptcy is challenging due to strict rules against canceling educational debt.
• The undue hardship exception allows to discharge student loans if severe financial difficulty is proven through tests like the Brunner Test. Different regions may consider the totality of circumstances, leading to variations in proving undue hardship.
• Student loans must be repaid if hardship is not proven in Chapter 7. On the other hand, Chapter 13 offers alternatives, including debt elimination or a payment plan based on income, stopping creditor calls and threats.

What is Bankruptcy? 

Bankruptcy is a legal process that provides individuals or businesses overwhelmed by financial difficulties with a fresh start. When someone files for bankruptcy, they are declaring they cannot repay their outstanding debts. The primary objectives of bankruptcy are to offer relief to debtors, ensure fair treatment of creditors, and distribute assets equitably.

Types of Bankruptcy

There are different types of bankruptcy, often referred to by the chapters of the U.S. Bankruptcy Code. The two main types for individuals are Chapter 7 and Chapter 13.

• Chapter 7 Bankruptcy – Also known as liquidation bankruptcy.
  • Involves the sale of non-exempt assets to pay off creditors
  • Typically, unsecured debts (like credit card balances) are discharged, meaning the debtor is no longer legally obligated to repay them.
• Chapter 13 Bankruptcy – Chapter 13 involves creating a repayment plan to pay off all or part of the debtor’s debts over a specified period, usually three to five years. It enables individuals with a regular income to keep their property while catching up on overdue payments.

Remember, not all debts are dischargeable in bankruptcy. For example, certain tax debts, alimony, child support, and student loans may survive the bankruptcy process. The decision to file for bankruptcy should be considered carefully, and individuals or businesses often seek legal advice to understand their options and consequences.

What are Student Loans? 

Student loans are financial instruments designed to help individuals fund their education, covering expenses such as tuition, books, and living costs. These loans are specifically tailored for students and typically offer more favorable terms than other loans. 

Types of Student Loans 

There are two kinds of student loans: 

• Federal Student Loans – These are loans from the government that are easier to repay. They offer extra protections for borrowers and options like income-based repayment plans. There are different types:
  • Direct Subsidized and Unsubsidized Loans: Subsidized ones are for undergraduates with financial needs, and the government covers the interest while in school. Unsubsidized ones are for undergrad and grad students, not based on need, and the borrower pays all the interest.
  • PLUS Loans: These PLUS loans are for parents of undergrad or grad students and require a credit check.
  • Perkins Loans: Perkins loans refer to low-interest federal loans for students with significant financial needs.
• Private Student Loans – These loans come from banks or credit unions, not the government. They may not have all the benefits of federal loans. The details, like interest rates and repayment terms, can vary. When you apply, they usually check your credit history and income.

Is it Easy to Get Rid of Student Loans through Bankruptcy?

Getting rid of student loans in bankruptcy is not easy. The law has strict rules about wiping out education debt, so looking at other ways to help is crucial. Bankruptcy law generally sets high standards for proving “undue hardship,” making it difficult to include student loans in a discharge. Exploring alternative avenues for assistance, such as income-driven repayment plans or loan forgiveness programs, becomes crucial for individuals navigating the complexities of student loans and bankruptcy. 

What are the Exceptions in Getting Rid of Student Loans in Bankruptcy?

All the tests listed below focus on showing that you do not make enough money to pay back your student loans.

Undue Hardship Exception

The “undue hardship” exception is the opposite of the usual rule. To qualify, borrowers must prove severe financial difficulty, which might allow them to eliminate their loans.

Here are the criteria:

• Brunner Test: This is the main way to prove undue hardship. It checks if the borrower cannot maintain a basic standard of living, experiences ongoing financial hardship, and genuinely tries to repay the loans.
  • Inability to Maintain Basic Standard of Living: The person borrowing the money can’t keep up with the basic way of life while repaying the loans.
  • Persistence of Financial Hardship: The money troubles are expected to stick around for a long time, even throughout the repayment period.
  • Good Faith Efforts: The borrower has truly tried to repay the loans in good faith.
• Different Rules in Various Areas
  • Totality of Circumstances: In some places, they look at everything going on, not just the Brunner test. The court considers various factors, including the debtor’s current and future income, employment prospects, health, living expenses, repayment efforts, family situation, financial management, other outstanding debts, educational and employment history, and broader economic conditions. This holistic assessment aims to determine if repaying student loans would lead to ongoing financial hardship, extending beyond the specific criteria of the Brunner test.
  • Jurisdictional Variations: The rules for proving undue hardship can differ depending on the location. That leads to variations in how bankruptcy courts in different regions handle cases where people want to get rid of their student loans.

What if I Can’t Erase My Student Loans with Bankruptcy? 

If you cannot show that repaying your student loans would be too challenging in Chapter 7, you will still have to pay them once your bankruptcy concludes. But in Chapter 13 bankruptcy, things can be different.

If you are having trouble with bills like medical expenses or credit card debt, you can either get rid of these debts or set up a payment plan based on your income. Even though you will still have to deal with any remaining balance after the payment period, this process stops calls from creditors, wage garnishment, and threats of home foreclosure. In short, bankruptcy helps by dealing with other debts, allowing you to focus more on repaying student loans.

Call our Bankruptcy Lawyer to Help You Get Rid of Your Student Loans Through Bankruptcy!

Are you drowning in student loan debt, feeling overwhelmed, and seeking a way out? At the Law Office of Eric Kornblum, we understand those challenges. Student loan bankruptcy in Springfield, MA, can be a complex journey, and our legal professionals are here to guide you through the process, ensuring you understand your options and potential relief.

Don’t let the weight of student loans ruin your financial future. Whether you are exploring avenues to discharge loans through bankruptcy or need assistance managing other debts, our bankruptcy attorney has a proven track record of helping clients find efficient solutions. 

Take control of your financial destiny—contact the Law Office of Eric Kornblum today to start a conversation for personalized legal assistance in navigating the complexities of student loan bankruptcy in Massachusetts. Let’s work together to ease your financial burden and pave the way for a brighter, debt-free future.

Aside from our office in Springfield, we offer bankruptcy legal services in our other office in Westfield, Massachusetts.