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Student Loans and Personal Bankruptcy in Massachusetts

Are Student Loans Forgiven in Bankruptcy?

If you are considering filing for personal bankruptcy in Massachusetts, it may be relevant whether or not your educational loans for college are forgiven in the bankruptcy.

The U.S. Department of Education has strict legal requirements that a bankruptcy court must follow in order to forgive educational loans.

Proving A Hardship to the Bankruptcy Court

In order to have an educational loan forgiven in bankruptcy (regardless of whether it is in Chapter 7 or 13), you must show that paying the loan would be an undue hardship. Bankruptcy courts consider three factors when determining if paying the educational loan would be an undue hardship:

1. If you pay the loan, you would not have enough money to maintain a minimal standard of living,

2. You show evidence that the hardship is likely to continue for into the future covering a significant portion of the loan period, and

3. You have made good-faith efforts to repay the loan before filing bankruptcy (often this means that you must have a significant repayment history, such as five years of payments).

The bankruptcy court will expect you to meet all three factors in order to discharge, or forgive, the loan. If you meet all three factors, then the court will dismiss the loan and you will not be required to pay any more of the loan back. Additionally, any collection calls or letters must stop.

Keep in mind that only a very small fraction of students with educational loans are found to meet all three factors. Most students must either continue to pay their current loan payments, start a new repayment plan with lower monthly payments over a longer period of time, or have a portion of their loans forgiven, but still be required to pay back the rest.

No Reaffirmation Requirement for Future Federal Financial Aid

If you decide to return to school in the future after a loan is discharged in bankruptcy, you will be eligible to receive Federal student aid. Under currentFederal rules, if you have had a Federal educational loan that has been discharged you do not have to reaffirm (reassume responsibility for paying) the discharged loan before obtaining new Federal loans.

Are Tuition Bills Covered by a Bankruptcy?

 

Tuition bills may or may not be included in the debts that can be discharged in a bankruptcy. Courts will assess whether the tuition bill looks more like a contract, which can be discharged in bankruptcy, or an educational loan, which cannot. A key factor in making that distinction is whether or not there is a “promissory note.” If the debtor signed a promissory note to repay the tuition over a set period of time with a set interest rate then the bill likely will not be discharged since it is an educational loan. If there is no promissory note, then the bill is simply a contract, which the court can discharge in bankruptcy.

More Questions on Personal Bankruptcy in Massachusetts?

Call the Law Office of Brian R. Lewis for guidance on all of your bankruptcy questions.

Chapter 13 Bankruptcy

Understanding Chapter 13 Bankruptcy

Individuals have the option of entering Chapter 7 or Chapter 13 bankruptcy. As discussed in an earlier post, Chapter 7 involves liquidation of the debtor’s assets meaning that most of the debtor’s assets are sold or returned to creditors to satisfy the bankruptcy. Alternatively, Chapter 13 bankruptcy involves a repayment plan in which the debtor restructures his existing debt to permit him to repay existing debts over time.

Background of Chapter 13

Chapter 13 is sometimes referred to as the wage earner’s plan. Under Chapter 13, the debtor (the person who files for bankruptcy) to make repayments over either three or five years to their creditors. If the debtor’s monthly income is below his or her state’s median income, then the plan will only be for three years. If above the state’s median income, then the plan will be for five years. During the repayment plan, creditors may not engage in collections during the repayment plan.

Advantages of Chapter 13

Chapter 13 can be advantageous over Chapter 7 because it permits the debtor to keep his home. The Chapter 13 debtor is permitted to pay back his delinquent mortgage payments over the course of the repayment plan. The repayment plan may also permit the debtor to restructure debts on existing debts on secured loans. Secured loans include car loans. So, a Chapter 13 debtor has the opportunity to keep his car if he includes the payments, including any delinquent payments, in the repayment plan.

Starting a Chapter 13 Case

A debtor must file a petition with the bankruptcy court for the area in which he resides. The debtor must provide the following information to the court:

1. schedules of assets and liabilities,

2. a schedule of current income and expenditures,

3. a schedule of executory contracts and unexpired leases, and

4. a statement of financial affairs.

A married couple may either file a joint petition or individual petitions. Married couples must gather the income and expenditures of both spouses regardless of whether or not both spouses are filing for bankruptcy. This is to provide the court with a complete picture of the household’s financial situation.

Like Chapter 7, Chapter 13 gives debtors an automatic stay that prohibits creditors from trying to collect on existing debts. Chapter 13 also protects “co-debtors” from collections. That means that a creditor cannot collect from either the debtor himself or someone who co-signed on a consumer debt.

What is a Priority Claim?

When you are compiling your financial information to report your assets, income, and expenses, one important set of claims are priority claims. Priority claims are claims which are to be paid before other debts. The two major types of priority claims are spousal support, child support, and tax debt. This means that child or spousal support (or domestic support) as well as claims from the IRS or your state tax department must be paid in full. Generally, priority claims are paid after secured claims (such as for housing and cars) are paid, but before consumer debt.

Personal bankruptcy law is very complex. It is very wise to hire a skilled bankruptcy law attorney to help figure out what you need to do. The Law Office of Brian R. Lewis can help.

Bankruptcy and Divorce in Massachusetts

Bankruptcy and Your Divorce in Massachusetts

 

Financial troubles are a leading cause of marital discord for couples in Massachusetts. If you and your spouse are considering divorce, you might be dealing with a messy debt situation. If so, you may need to reach out to an experienced Massachusetts Bankruptcy Attorney who can help you figure out your rights and responsibilities regarding your and your spouse’s debt. At times a bankruptcy may be appropriate to prevent your debt situation from getting worse. Timing is critical with these matters, as there are different ramifications regarding a bankruptcy that happens before or after a divorce.

 

Marital and Non-Marital Debt

 

First, it is important to know the difference between the two types of debt in a divorce proceeding under the law: marital and non-marital debt. In general, as the name implies, marital debt is debt acquired while the couple was legally wed, whereas non-marital debt is that acquired before marriage or after divorce.

 

In most circumstances, you will not be responsible for your spouse’s non-marital debt (e.g. , student loans or credit card charges incurred before you were married). However, responsibility for your own non-marital debts will be (with limited exceptions) exclusively yours.

 

You Could Be Held Responsible for Your Spouse’s Debts

 

This much is fairly straightforward. However, since both you and your spouse are on the hook for marital debts, responsibility for their repayment will be assigned during divorce proceedings, along with the division of marital assets. The judge makes the final decisions in a divorce, and individual debts might not be assigned to the spouse who incurred them, it is possible you could end up responsible paying for things you never bought.

 

Moreover, it is important that you know, even if your spouse is held responsible for a debt in your divorce judgment, your creditors will continue to view you as a party responsible for the debt, as well. As a result, they will maintain the legal right to pursue repayment if your ex does not cough up as required under the divorce decree. A divorce is only binding on the parties to the lawsuit, meaning that if your former partner does not pay, you may be required to pay instead or see your credit score ruined. Your only recourse would be to sue your deadbeat ex for repayment.

 

Protect Yourself

 

Considering these possibilities, you must do all that is possible to prevent an already-bad debt situation from getting worse, even before your divorce.

 

Good counsel can help you protect your bottom line and financial future, representing your interests on all debt matters. Whether you are contemplating divorce, in the middle of the proceedings, or were recently divorced, the Massachusetts bankruptcy attorneys at the Law Office of Brian R. Lewis can listen to your story and explain the best course of action. Sometimes that may mean filing for bankruptcy, but at other times you could have alternative options.

 

Don’t wait to get your life, and finances, back on track. Contact our legal team today for a consultation and begin the process of regaining your personal and financial freedom.

Can You Afford Bankruptcy?

Most people assume bankruptcy is something a person does when he or she has no more money. If you cannot afford to pay your bills, bankruptcy makes it possible to not pay them or it gives you longer to pay without financial penalty. This is true, but bankruptcy cannot be filed for free. It actually costs money to file for bankruptcy, but how much depends on where you live, what type of bankruptcy you file, and who you choose to have support you during the process.

Changes to Bankruptcy Law

Filing for bankruptcy is different than it was ten years or so ago. New bankruptcy laws have created a situation in which some people are actually too poor to get the protection bankruptcy provides. The cost of bankruptcy has risen a great deal under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. What does this mean for you?

Filing Chapter 7 bankruptcy has much stricter requirement than it did in the past. The process is more complicated than before and it requires lawyers work more hours to complete the paperwork required to help a client file. One study showed the cost of fees was approximately 50% higher than it was prior to the law change. The average cost of filing during the first half of the last decade was less than $1000. This alone prices many people out of the bankruptcy market.

The news is no better for those filing Chapter 13 bankruptcy. The average cost today for a person to file this type of bankruptcy is approximately $3000, up from $2000 prior to the enacting of the new law.

Why is the Bankruptcy Process Tougher and More Expensive?

Considering the credit card companies were big supporters of the new bankruptcy law, it is no surprise it has made bankruptcy more difficult for consumers. These companies lose money when consumers file, so they do everything in their power to prevent that from happening. Even though bankruptcy can help a credit card company recover some of their money, it prevents an aggressive grab on their part for interest and fees.

In addition to attorney’s fees, accountability fees are also higher than ever before. Filers must also pay to attend a debtors’ education course before their filing is granted.

What does all of this mean for you? It is important to research your bankruptcy options carefully and be sure you are getting a good deal when you file. Filing fees might not be negotiable, but it is possible to search for an attorney that offers a fair rate and understands your financial restraints.
If you would like to know more about bankruptcy in Massachusetts or you are ready to discuss your options, contact the Law Office of Brian R. Lewis at 508-946-3323

Can You Get a Home Loan after Bankruptcy?

Most people assume that filing bankruptcy ends any hope you have of a financial future. It affects the jobs you can have, the places you can live, and ultimately, what you can achieve in life. It is true bankruptcy does have a profound effect on your future, but it might not be as bad as some assume. As a matter of fact, for many, bankruptcy is the key to having a brighter financial future – One that might even include one day owning a home.

You Can Own a Home after Bankruptcy

It is a common misconception that you cannot buy a home after filing for bankruptcy. What people fail to realize is that bankruptcy is a process. It is not a black and white occurrence that eliminates all hope for a bright future. Bankruptcy does not end your chances of ever reaching your goals, even when those goals include owning your own home. Bankruptcy might make it more difficult to buy your own home, but if you carefully navigate the process of bankruptcy now, it can keep doors open for you in the future.

This is true even if your bankruptcy includes a current mortgage. Some people file to stop foreclosure proceedings. It is possible to keep your current home after filing for some types of bankruptcy and it is possible to buy a new home again in the future after filing.

Avoiding Bankruptcy Can Make Home Ownership Impossible

Unfortunately, some people choose not to file for bankruptcy because they assume it means it will eliminate any future opportunity to buy a home. This is not true. As a matter of fact, people who postpone bankruptcy often end up messing up their chances of owning a home more than someone who files at the right time. The important thing is not whether or not you ever filed for bankruptcy it is whether or not a bank deems you worthy of a loan when the time comes to apply. The further in the past your bankruptcy and the more you have done to clean up your financial status the better your chances of being granted a mortgage.

The bigger factor in whether or not a lender considers you a worthy candidate is your debt to income ratio. Most mortgage companies want to lend to people with debt to income ratio lower than 30%. When your debts equal less than 30% of what you make, you stand a fairly good chance of being granted a loan. Unfortunately, if you are teetering on the edge of bankruptcy, your debt to income ratio likely far surpasses that. And without filing you might not ever bring it to that point. Bankruptcy can help you get your debts under control and pay them down in a reasonable amount of time. Once your debt to income ratio is better, you are considered more qualified for a mortgage.

If you are in debt, but you are concerned bankruptcy will ruin your financial future, you need to explore your options a little more. We can help you determine if bankruptcy is the right choice for you and guide you toward a financial solution that makes it possible to achieve your dreams one day, including that of owning a home. Contact the Law Office of Brian R. Lewis today for more information.