If you have student loans, you are not alone. In fact, roughly 45 million Americans have outstanding education-related loans. The balance on these loans is an astounding $1.56 trillion, with the average borrower owing nearly $33,000.
Even though student loans were vital to meeting your educational goals, you may be having trouble making monthly payments. While you may have heard student loan debt is not dischargeable in bankruptcy, you should realize this notion is not absolute. If you can show paying your loans is an undue burden, you may be eligible for relief.
A three-part test
For your student loans to be unduly burdensome, each of the following must be true:
This three-part test, known as the Brunner test, may make discharging student loan debt difficult. It is not impossible, however. Accordingly, before exploring other options, you should certainly investigate whether your student loans qualify for discharge.
A tangential benefit of bankruptcy protection
If you decide you are ineligible to discharge your student loan debt, you may not want to give up on bankruptcy altogether. After all, your credit card balances, medical expenses and other outstanding debts are probably dischargeable in bankruptcy.
By filing for bankruptcy protection, you may free up enough funds to stay current with your student loan repayment plan. Furthermore, even if you cannot discharge all your student loans, some related loans may be dischargeable. For example, you may have taken an independent, non-student loan to pay for some education-related expenses.
A bankruptcy filing has both direct and tangential benefits. If you are looking to secure financial freedom, exploring your bankruptcy options probably makes good sense, regardless of what ultimately happens to your educational loans.
Many people consider their home a source of stability. Knowing that you have a comfortable place to return to after a long day and a space in which to safely store your belongings is undoubtedly a high priority for your family.
When you experience financial troubles that you cannot overcome and bankruptcy enters the picture, it can be an intimidating experience. Worrying that you may lose that source of stability your home provides can make it even harder to endure.
However, many states, including Mississippi, offer a method of protecting a portion of your home’s value during bankruptcy. The law refers to this protection as a homestead exemption.
What is a homestead exemption?
The purpose of a homestead exemption is to insulate your primary residence from claims by creditors. Your primary residence is the home in which you currently live. In Mississippi, this exemption protects up to $75,000. Additionally, the property you wish to protect can be as large as 160 acres.
How does a homestead exemption work?
While the value may seem low given rising housing costs, it involves determining your equity after deducting mortgages, taxes and liens. As an example, if you have a home with a value of $350,000 but its mortgage is $300,000, the $50,000 equity you have in your home would be well within the monetary limit that the exemption laws may protect.
Furthermore, money you gain from the sale of an exempted home is likewise exempt. This provides the opportunity to move if you need to, such as to seek new employment opportunities, while still maintaining funds for the down payment your next home would require.
How do you receive a homestead exemption?
Owning or living in a property does not automatically make it exempt. Instead, you must file a homestead declaration with the county tax assessor’s office. That said, you do not have to file the homestead declaration prior to the date you file for bankruptcy.
Chances are you are not familiar with the bankruptcy process and all you want is for the whole event to go smoothly.
Here are five mistakes you can easily avoid to make that happen:
Remember that the law requires you to list all your creditors when filing for bankruptcy protection. Your trustee may not discharge a debt you fail to initially report.
If you owe money to a family member, do not make the repayment prior to filing bankruptcy. The trustee who administers your case may interpret this as a “preferential payment” and disallow it. Your family member will likely have to send your repayment to the trustee.
Do not fail to list a second bank account. Do not try hiding a sum of cash by transferring it to the bank account of a relative or friend. If you attempt to hide assets prior to a bankruptcy filing, you could face fines plus time behind bars.
Do not fall into the trap of believing it is OK to go on a spending spree with your credit card before you file for bankruptcy. Your trustee will likely not discharge big-ticket items that show up just before the filing.
Finally, procrastinating is not a good idea. Every day you wait to file Chapter 7 or 13 only increases the amount of debt you are carrying. Delinquent bills may go to collection agencies and from there to your bank account in the form of wage garnishments. Your creditors will also hound you on the phone. Take the initiative. Learn more about the benefits of filing for bankruptcy and be proactive. The sooner you file, the sooner you can enjoy a brighter financial future.
Bankruptcy is a court decree that declares organizations or individuals unable to pay their bills or debts, thus legally eliminating their obligation to settle outstanding liabilities. The court arrives at the decision after the judge and court trustee carefully examine and weigh the individual’s or business’s assets and liabilities. However, the court may not grant every request for bankruptcy; there are strict qualifications that one must meet when filing for bankruptcy.
Declaring bankruptcy is often a good way of starting on a clean slate after running into some serious commercial or personal financial problems. But what does it really mean? What happens when the court grants your request for bankruptcy?
Automatic stay
Automatic stay is a preliminary court decree that protects you from creditors and debt collectors once you file for bankruptcy. This decree remains until the bankruptcy proceedings finalize, after which the court may or may not declare you bankrupt. As long as the automatic stay holds, creditors and collectors should not call, threaten or send notices regarding your debts.
Discharge
Once it declares you bankrupt, the court prevents creditors from collecting or claiming debts you previously incurred. The ruling clears unsecured liabilities such as credit card debts and other personal loans, but with a few exceptions. Personal discharge does not extend to some tax liabilities, child support, student loans, alimony and real estate loans. The court considers such debts too important to wipe clean, but in some cases, the court may provide opportunities for formulating feasible payment plans.
Clearing secured debt
Although you can wipe out secured debts through declaring bankruptcy, the court may require you to give up any assets securing such debts. For instance, if you secured a bank loan with your car, you may have to part with the vehicle as part or full settlement for the loan. In some cases, the court may order the liquidation of valuable assets that are not part of the collateral to clear secured debts.
Declaring bankruptcy is an effective way to get out of a personal financial crisis, particularly involving debts. However, you need to understand what you’re getting into when considering this move; there are many benefits and negative implications that may arise depending on the approach and timing.
Many people consider bankruptcy protection as the last resort. It remains on your credit report for up to 10 years, depending on which chapter you file. It can be a difficult yet wise decision if you are struggling to make ends meet.
Here are a few signs that may suggest filing bankruptcy is a good solution.
Decrease in monthly income
A permanent change in monthly income may be tough to adjust to. It could be the result of job loss, reduced hours, a job change or retirement. If you are unable to adapt to a permanent reduction in monthly income, bankruptcy may help. It could relieve reoccurring financial struggles, such as mounting credit card debt.
Increase in monthly debt
The stigma of bankruptcy often keeps consumers in a whirlpool of mounting debt. Many opt for overuse of credit cards to pay for necessities, such as groceries and utility bills. This can escalate into out-of-control debt. During challenging financial times, you may have to pay credit card payments late or skip them altogether. This gives the credit card companies the ability to raise your interest rate.
Bankruptcy may offer financial relief when struggling with medical expenses or student loan debt. Bankruptcy forgives most medical debts. Although it is rare for someone to have student loan debt discharged, filing bankruptcy may temporarily suspend payments. Additionally, you may be on a better track to make your student loan payments after bankruptcy has eliminated other debts.
Change in living arrangements
Changes in your living arrangements often affect monthly expenses. Death, divorce or a grown child moving back home are typical scenarios. If you own your home and have monthly mortgage payments, it is important to stay current. Falling behind by a few months will affect your ability to maintain regular payments and can lead to foreclosure.
Banks and mortgage companies must abide by the decision of the bankruptcy court. Do not hesitate to file bankruptcy to protect your most important asset – your home.
