Aside from mortgage debt, one of the more common problems New York debtors face is student loans.
These debts can be challenging for debtors to deal with because in 1998 the federal government subjected all federally backed student debt to the undue hardship test for bankruptcy dichargeability. In 2005, it extended it to private student loans. “Undue hardship” means debtors must show the bankruptcy court that there is no possibility they will be able to work again to pay off the debt.
For many people seeking bankruptcy protections, relief from student debt and a fresh start are all but impossible. Fortunately, Congress changed the lending laws to allow debtors to pay back government-backed student loans based on their income. The program, called Income-Based Repayment (IBR), has many benefits.
(1) It allows debtors to consolidate most federal loans created under the Direct Loan and FFEL Program:
a. Stafford Loans
b. PLUS Loans
c. Consolidation Loans
(2) However, IBR does not allow the following loans to be consolidated into the plan:
a. Parent PLUS Loans
b. Consolidation Loans repaying Parent PLUS Loans
c. Loans in default.
(3) Even though it has only existed since 2009, loans that were issued before the advent of IBR are eligible, as are loans for any kind of education (undergraduate, graduate, professional, and any others)
(4) How does it work? The U.S. Department of Education uses income, family size, and state of residence to determine what the debtor’s monthly payments are. If the calculation is below the debtor’s current monthly payment rate, then he or she is eligible.
(5) People who file joint federal income taxes with their spouses can have their spouses’ IBR-eligible loans included in the repayment calculation. This means that if the two of you are together making monthly payments greater than the IBR calculation, then you will have your combined monthly rate reduced under IBR.
Many student debtors are unaware of IBR, but consulting with an experienced New York bankruptcy attorney can help you determine eligibility and help you get control over your other debts.