When individuals or families take on debt, many assume that there is no real difference from one debt to another. Others understand that some debt is considered “secured” with a tangible asset such as a car or a home and that some is unsecured such as credit card debt. Still there is debt that has further restrictions.
Student loan debt is one kind of debt that a large percentage of individuals in Tampa and across the country have but maybe don’t completely understand. First off, there are two kinds of student loans: private and government, each with their own set of rules for collections and treatment during bankruptcy. Congress is currently considering a rule change that would allow the Education Department to automatically withdraw funds from borrower’s paychecks.
The U.S. student loan business is measured at $100 billion per year, but the outstanding balance has been estimated at levels higher than $1 trillion. In 2011 alone, approximately 5 million former students were at least 270 days behind on payments putting their loans under default status.
Traditionally, the federal government has enlisted private collection agencies to handle collections for loans funded under this program. This costs the government up to 25 percent of the borrowers’ loan balances. In an effort to cut the budget, Congress is considering eliminating the middle man and going directly to setting up the automatic withdrawals. These automatic withdrawals would max out at 15 percent of the borrower’s paycheck in order to ensure that the borrower still has adequate expenses to pay for daily needs.
Student loans can be burdensome, especially with the current job market. Wholly private student loans may be dischargeable during bankruptcy while those funded completely or in part by a government unit generally are not without proof of undue hardship. Although they are generally not dischargeable, the debt is considered in determination of repayment plans under a Chapter 13 bankruptcy.
Source: Collections & Credit Risk, “Student Loan Collections Pegged for Overhaul,” Dec. 4, 2012
Understanding how debt is handled during bankruptcy is not something that most people understand. Our Tampa bankruptcy firm not only helps individuals through the process, but helps them understand all of their options and how a specific solution would make sense for them.