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  1. #1
    Join Date
    Oct 2015

    Default How to File Chapter 7 Bankruptcy for Student Loans

    I am deciding on whether to file chapter 7 and a big part of it will be if i can get some very old student loans discharged.

    I'm a 47 year old male. I won't go into why I have gotten into this situation.

    I have two student loans. A Stafford and a Perkins. The Stafford has a principle of $2,800 and as of 2011 outstanding interest of $4,915 for a total due as of 2011 of $7,715. The Perkins has a principle of $700 and interest as of 2011 of $943 for a total of $1,643. Both now are probably around $15k. These loans are from 1987 and have been in default for many many years. Using the income based repayment plan calculator on the USDE website my monthly payments based on my salary for the past 3-5 years would be $0 if I could get on the new Obama plans.

    My circumstances right now-

    1- My yearly income for the last 3-5 years has been between $7,500 and $12,000 with the past two years only being $7,500 or so. I work through a hiring hall and work has dropped considerably.

    2- Since 2012 I have had a wage garnishment. Not sure if this is because of the student loans or federal taxes. (see #3)

    3- I owe around $16k in past due federal taxes. $11k of this will reach it's statute of limitations in Feb 2016. The remaining amount reaches it's statute of limitations in Aug 2017. I am hoping to work something out with the IRS or the bankruptcy court.

    4- I have other debts but they only total around $3k so my debt total including the taxes and student loans is around $30-32k right now. If I wait until February then $11k will drop off from federal tax SoL and so in a few months it'll be around $19-21k.

    5- I have no medical conditions that i would bring up to the court

    6- I do not own a car and my physical assets are probably worth less than $500. My monthly bills are around $700.

    7- I don't see my circumstances changing in the near future without some relief of the federal taxes and student loans. I cannot start rebuilding my life when I can't even get a bank account or car or even a decent apartment.

    Not sure if I can pass the Brunner Test or not but I would like to try.

    I have two options that I can see right now.

    1- File bankruptcy and hope to get the student loans either discharged partly or whole. Settle with IRS for the remaining balance after Feb 2016.

    2- Not file bankruptcy and enter into the new Income Based Repayment plan where my payments will be between $0 and $17/month for 25 years (I'll be 73 years old) and then the student loans will be discharged. Same deal as the other concerning the federal taxes. Paying the $3k in regular debts.

    Can someone give me some advice concerning the chapter 7 and student loans/federal taxes please? Anything you guys can tell me would be appreciated.

  2. #2
    Join Date
    Feb 2014

    Default Re: Chapter 7 for Student Loans

    Good luck discharging student loans via bk.
    Discharge in Bankruptcy

    This is not an automatic process—you must prove to the bankruptcy court that repaying your student loan would cause undue hardship.

    If you file Chapter 7 or Chapter 13 bankruptcy, you may have your loan discharged in bankruptcy only if the bankruptcy court finds that repayment would impose undue hardship on you and your dependents. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request. The court uses this three-part test to determine hardship:

    If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
    There is evidence that this hardship will continue for a significant portion of the loan repayment period.
    You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).

    Your loan will not be discharged if you are unable to satisfy any one of the three requirements. If your loan is discharged, you will not have to repay any portion of your loan, and all collection activity will stop. You also will regain eligibility for federal student aid if you had previously lost it.
    Don't make me quote Monty Python at you.

  3. #3
    Join Date
    Oct 2014

    Default Re: How to File Chapter 7 Bankruptcy for Student Loans

    Quote Quoting ufos8mycow
    View Post
    Can someone give me some advice concerning the chapter 7 and student loans/federal taxes please? Anything you guys can tell me would be appreciated.
    Iím going to assume that your federal tax delinquencies are for federal income tax and that no portion of the liability is due to fraud. If that is the case, then your tax liabilities may be eligible for discharge in bankruptcy. The general rule is that the an income tax liability is eligible for discharge in bankruptcy if it has been (1) at more than 3 years since you filed the return to which that liability relates and (2) it has been more than 240 days since the tax was assessed (this second part is there for audit adjustments, etc). However, any debt, including tax liabilities, that are due to fraud are not dischargeable. So it may well be that even if the student loans are not dischargeable that the bankruptcy could help you with the tax debts and that might give you some needed debt relief.

    The statute of limitation (SOL) for collection of a federal tax liability is generally 10 years from the date that the tax was assessed. There are, however, several things that toll (suspend) the running of the SOL. One of those is the filing of bankruptcy. So, if you file bankruptcy any taxes for which the SOL is still open when the petition is filed and that are not discharged in the bankruptcy will have the SOL extended for the time the IRS is precluded from collecting in the bankruptcy plus six additional months. There are other things that extend the SOL, too, inlcuding submission of an offer-in-compromise (OIC), extension by a waiver signed by the taxpayer (generally in connection with an installment agreement), and any extended period of time the taxpayer is outside the U.S.

    What this means is that you want to consider carefully whether the taxes are likely to be discharged in the bankruptcy and, if not, what bankruptcy will do to the SOL for collection for any non-discharged taxes in deciding whether to file bankruptcy and how to time any petition for bankruptcy.

    BooRennie has already provided you information on the student loan part of your question. It is pretty difficult to prove the undue hardship necessary to succeed in discharging student loans. I suggest you discuss this with a bankruptcy lawyer who is experienced in dealing with student loan debts in bankruptcy to a realistic view of how likely it is that you could get these debts discharged.

  4. #4
    Join Date
    Apr 2009
    Somewhere near Canada

    Default Re: How to File Chapter 7 Bankruptcy for Student Loans

    (is it worth mentioning the IRS' right to offset, or not an issue here?)

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