WRAL Reader Question

Dear Steve,

Homeless for 3 years. Have been only able to get part time jobs. Nobody knows I'm Homeless. Recently got another part time job with a well known company started getting calls about my student loan.

Now I find out my federal tax refund a measly $800 will be given all to my student loan. I was hoping to save that money for when I'm able to get an apt. I don't understand how the gov't can do this when I wasn't even notified by mail or phone of this and my income should show my financial hardships I barely have enough to live ( $740/monthly take home).

The last I checked my loan was $16,0000 but that was 3 years ago. I've thought about bankruptcy but it says student loans aren't allowed for chapter 7. Then I saw it might be possible if I pass Brenner test.

So is there still hope for Chapter 7 eligibility for a student loan If I only have enough money to eat/wash/pay for storage/cell phone/public transportation to work?

Signed,

Hopeless

Answer

Dear Hopeless,

The good news is your situation does not need to empty of hope. And even better, it appears you have federal backed student loans.

For government backed student loans there are some excellent programs that can reduce your monthly payment to $0 and prevent your loans from continuing in default. Better yet, you do not need to pay any fee to get involved in these programs with the Department of Education.

Please read The Ultimate Guide to Dealing With Student Loans You Can't Afford and that will help to stop future seizures of your tax returns and prevent administrative wage garnishments.

Getting on one of these repayment plans to renew eligibility will stop tax intercepts. If you act fast it might even stop this years. But timing is everything and it might be too late for this years intercept if it has already occurred.

Now that things are starting to get back on track in your life, and congratulations for that, it's time to properly address the student loan issue with a real plan for dealing with them.

One of the things you should consider is adjusting your withholdings so you are getting more in your paycheck and less in a tax refund. It sounds like that extra income each month would really be helpful right now.

It is possible in a limited set of circumstances for people to still discharge student loans in bankruptcy.

Studies have shown those most likely to achieve this result are:

Less likely to be employed.

More likely to have a medical hardship.

More likely to have lower annual incomes the year before they filed for bankruptcy.

Even then the process of finding a bankruptcy attorney to tackle this issue can be nearly impossible.

My advice would be to first investigate the student loan payment reduction programs and adjust your tax withholdings before moving on to try and find a bankruptcy attorney.

Let me know how you get along by posting updates in the comments section below.

Steve Rhode

WRAL Get Out of Debt Guy

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