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Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2832
Experience:  Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.
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My daughter has applied for disability under new provisions

Resolved Question:

My daughter has applied for disability under new provisions covering adults with severe congential heart defects - She is not working now, but was after getting a student loan dor a surgical tech job. She was excellent at this until a deterioration of her condition which barred her from being in OR - she eventually lost her job and has not been employed for over a year. She has some student loans (some Sallie Mae & Some Not). She is separated from her husband only staying marriage for insurance purposes. Her unemployment has run out and she has no assets or debt other than the student loan as her husband allowed the bank to take their house after the separation. She lives with me or she would not have a place at all. She is currently under medical treatment and is getting harrassing calls from student loan creditors. If she gets her disability income can this be attached by the student loan companies? Can she file bankruptcy & get any relief? A 16K debt is now $22k!
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  Terry L. replied 5 years ago.

Terry L. :

Hi, thanks for your question. You should hire a lawyer for specific legal advice. No attorney client relationship is created here.

Terry L. :

Bankruptcy can discharge consumer debts.

Terry L. :

Educational debts are normally not dischargeable under bankruptcy though.

Terry L. :

There is an exception though.

Terry L. :

The caselaw is set out in IN RE BRUNNER.

Terry L. :

Basically, the debtor needs to file an adversary proceeding in the bankruptcy case.

Terry L. :

She'll need to prove:

Terry L. :

1. Paid the debts in the past

Terry L. :

2. Has no current ability to pay

Terry L. :

3. Has no future ability to pay.

Terry L. :

So, #3 is the hardest.

Terry L. :

Permanent disability is helpful to prove #3.

Terry L. :

But, if the court determines she can work and make some income (albeit not in the same field) then she could lose.

Terry L. :

The US Dept Ed will likely object, and then the court will have to decide if she meets all 3 prongs to have the debt discharged in the bankruptcy case.

Terry L. :

Do you have any questions?

Terry L. :

As to if they can take disability:

Terry L. :

The government can take some federal benefit payments (including Social Security retirement benefits and Social Security disability benefits, but not Supplemental Security Income) as reimbursement for student loans.


The government cannot take any amount that would leave you with benefits less than $9,000 per year or $750 per month. And, it cannot take more than 15% of your total benefit.


 

Customer:

She has no income now & no persoal assets. She is one of the older patients with her congenital heart defect and the future is uncertain. She is under active treatment for a complication now, but if that is cleared she may have some ability with addtional job training under disability provisions to have an income at some point. Is there a precident for suspending the loan with no accural of additional interest until she come off of disability?

Terry L. :

that is something she'll need to discuss with the student loan companies. However, I find that unlikely. They may defer payments though

Customer:

She has been paying them out of her unemployment benefits leaving her with pretty much nothing each month, but the benefit have now run out and their last attempt to draft funds has failed. She has been in and out of deferments over the years. If one of her loans is not a Sallie Mae backed instrument do the rules change?

Terry L. :

the rule is for "all educational debt" so it doesn't matter who the provider was

Terry L. :

Best for her to talk to a local bankruptcy attorney to review the potential liklihood of sucess

Customer:

Does anyone have any success reducing the student loan down to principal or a smaller settlement?

Terry L. :

Bankruptcy does not reduce student loans, unless they are paid down in a chapter 13 consolidation

Customer:

Would it be a good idea to ask for a full breakdown of the components of the current $22K debt as to who is the backing financial instituiton, how much is principal & how much is interest or other fees? The go to a local firm?

Terry L. :

you can, but that usually will not be necessary

Terry L. :

most of it will be on the credit report

Customer:

Any other closing thoughts before I go?

Terry L. :

It's pretty set in stone as to the caselaw for discharging student loans. They keep making it harder and harder each time the bankruptcy code gets updated.

Terry L. :

I wish you and your daughter the best of luck, she might have a shot!

Terry L. :

good luck and thanks for your question.

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