“managing Student Loans During Economic Hardship: Tips For Tough Times” – This article was published before the recent announcement of the federal student loan forgiveness program. To learn more about federal student loan forgiveness and how refinancing can help with the rest, visit our Center for Federal Resilience.

We all want to be in control of our lives and our future. But as we recently learned, life can be unpredictable. None of us could have known that we would go from the longest period of US economic expansion to a global pandemic with record unemployment. Despite what many experts say, none of us can be certain that a long-term economic downturn is on the horizon.

“managing Student Loans During Economic Hardship: Tips For Tough Times”

Here’s a must-do now to ensure we’re financially prepared for any economic challenges that may lie ahead: We can plan to take control of our finances, including our student loans.

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Planning now before an economic downturn can help you avoid delinquencies and defaults and help you avoid making knee-jerk financial decisions when you’re under stress. It can also help you stay in control of your personal finances, including student loan payments, despite what’s happening in the stock or job markets (or even the supermarket).

Although life can change quickly, the basic principles of successful money management never change. It is necessary to monitor and control expenses, increase savings and reduce debts. Here are some ways to accomplish this:

If you’re paying off or consolidating debt, you’ll want to keep some lines of credit open in case you need easy access to more money than your emergency fund can cover. Whatever you do, be sure to use credit wisely. The last thing you want is to accumulate more debt during an economic downturn.

Whether you’re facing financial difficulties or want to prepare for future challenges, there are some specific steps you can take now to manage your student loan debt. You can look for relief for both federal and private student loans, although federal loans offer more options. Here are some tips:

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If you’re refinancing with a private lender, you may want to choose a longer term that will lower your required monthly payment. If your finances improve, you still have the ability to pay more on your loans.

Try as we might, we really cannot predict what our economic future holds. Regardless, remember that nothing lasts forever – but good financial habits like planning, saving and smart borrowing can make a lifetime difference.

Perhaps the most important thing you can do, especially if a recession is looming, is to take the time to seek sound financial advice. Short-term financial decisions can have long-term effects, so it’s important to think clearly and plan as well as you can.

Our colleagues are ready and willing to listen and offer guidance during these uncertain times. If you’re experiencing financial hardship, learn more about Education Refinancing Loans. If you want an immediate answer, we are also in the chat.

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© Citizens Financial Group, Inc. All rights reserved. Citizens, N.A. It is a brand name of Citizens Bank, Member FDIC

Disclaimer: The views expressed may not necessarily reflect the views of Citizens. The information contained herein is for informational purposes only as a service to the public and is not a substitute for legal advice or legal advice, nor does it constitute an advertisement or offer. You should conduct your own research and/or contact your own legal or tax advisor for assistance with questions regarding the information contained herein. References to resources or organizations listed in this article do not constitute or imply endorsement or support by Citizens. To file for student loan bankruptcy, you must first file for Chapter 7 or Chapter 13 bankruptcy. You will then need to submit an adversarial process (AP) to have your student loans reviewed for discharge. Basically, you must prove that repaying the loan will cause undue hardship.

You can get student loans in some cases, but the process is more complicated than with other types of debt. Filing for student loan bankruptcy does not guarantee that your student loan will be discharged.

First, you must file for Chapter 7 or Chapter 13. Next, you must take the additional step of filing the opposing party’s proceedings. Falling behind on your payments can have a significant negative impact on your financial life, including lowering your credit score. If you’re considering defaulting on your payments and filing for student loan bankruptcy, weigh the pros and cons.

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Beginning March 9, 2022, you may file an active bankruptcy case with the U.S. Department of Education’s filing with the U.S. Department of Justice. This break is still in effect from the beginning of August 2023.

Filing for Chapter 7 or Chapter 13 bankruptcy requires completing extensive paperwork and disclosing your assets, income, debts, and expenses. The bankruptcy court will appoint an impartial trustee to meet with your creditors to confirm your debts. You should also undergo credit counseling.

In a Chapter 7 bankruptcy or liquidation, the trustee will sell your non-exempt assets. Exempt assets vary by state, but often include your home, vehicles, and other valuables. The trustee uses the proceeds to pay off as much of your debt as possible to your creditors, and the court pays the rest.

To file Chapter 7, you must not have filed another Chapter 7 bankruptcy within the past eight years. Also, your current monthly income must fall below the state median income or pass a means test. Certain debts, such as taxes, alimony, and child support, cannot be discharged. Once you’re done, you can apply for student loan forgiveness.

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Many people file for Chapter 13 bankruptcy or reorganization when they fail the Chapter 7 means test. They can also apply if they don’t want to lose their home to foreclosure.

Chapter 13 involves creating a repayment plan that uses up to 100% of the debtor’s disposable income to pay off creditors over three to five years. Payment is monitored by a trustee who receives the monthly payment from the debtor and redistributes it to the creditors as indicated in the payment plan.

Bankruptcy stays on your credit history for up to 10 years. Your credit score will be significantly reduced by bankruptcy.

With student loans, you have to take the extra step of filing a bankruptcy petition with an adversary. The adversary court determines whether or not your debt will be discharged.

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In an adversary proceeding, the paperwork is a “complaint.” The complaint includes administrative details, such as your bankruptcy case number and the reasons you want to discharge your student loans in bankruptcy, i.e. your undue hardship circumstances.

Student loans have stricter requirements for discharge described in section 523(a)(8) of the US bankruptcy code.

If you file for Chapter 7, you can file an adversary proceeding right after you file for bankruptcy. If you’ve already filed for Chapter 7 bankruptcy and your business is closed, depending on where you live, you may still be able to file for an adversary process to have your student loans discharged.

If your Chapter 7 case has already been closed, you must first move to reopen your bankruptcy case. This is a procedure and does not restart the bankruptcy or remove any discharge you may have already received for your debt.

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When you can file an adversary in Chapter 13 bankruptcy depends on the bankruptcy court rules where you live. No matter when you apply, if you win the adversary process, your student loan nightmare won’t end. This is because you must wait until you have completed your Chapter 13 plan payments and won your discharge order for your other debts before your student loans are discharged.

If you are allowed to file an opposing party’s lawsuit early, you may be able to complete the process and get a decision on your student loans sooner. The table below compares Chapter 7 and Chapter 13 bankruptcy.

Must have sufficient disposable income to cover debt payments for three to five years; total secured and unsecured debt not to exceed $2,750,000

Collection activity stops; all debts are discharged, except for debts deemed by the court to be non-dischargeable, such as taxes and child support.

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Collection activity stops; can freeze the foreclosure and give you more time to catch up on your mortgage payments; the balance of unsecured debts written off after completion of the payment plan for priority and secured debts

To have your student loans discharged, you must prove that not having them discharged would cause you undue hardship and you must meet specific conditions.

Your student loan lenders (which can include lenders, servicers, and collection agencies, depending on the types of loans you have and how far behind you are) must meet specific conditions.

Most states use the Brunner test to determine what constitutes an undue hardship. Basically, the test assesses a person’s current financial situation, their near future, and whether they are making a good faith effort to repay their loans.

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A few states use a total of circumstances test. It doesn’t take into account that you are making good faith efforts to pay off your loans, such as getting a job, increasing your income, and so on

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