Taxes and Student Loans

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How Bankruptcy Affects Taxes & Student Loans

Charlotte Bankruptcy Attorney

The overwhelming cost of an education may cause some college graduates to owe thousands of dollars on their student loans. Many of these individuals consider filing for bankruptcy protection to discharge the loans. While discharging student loans is difficult, it can be done. At Schwilm Law Firm, PLLC, we fully explain how your student loans and income taxes are affected by your bankruptcy filing. We ensure that you are fully prepared for each step of the process, including what debts you are responsible to pay even after your discharge.

How does bankruptcy affect student loans?

To discharge a student loan, you must show that payment of the student loan causes an “undue hardship” on you and your dependents. Under bankruptcy law, undue hardship is extremely difficult to establish. However, if a debtor successfully proves undue hardship, the court may allow the loans to be discharged or cancelled. If undue hardship is not established, bankruptcy may still provide relief to the debtor.

If you file a Chapter 13 case, your plan of reorganization sets forth how you intend to repay all of your creditors, including the lender of your student loans. Paying a student loan under the plan may be beneficial to you because while you are in bankruptcy (which is three to five years under Chapter 13), you make the payments as set forth in the plan. At the conclusion of your case, you are still liable to pay the remainder of the balance on your student loan. However, your financial situation hopefully has improved by then, and you are in a better position to resume making the regular payments.

What is student loan repayment assistance?

Student loan repayment assistance is different from other repayment plans, modifications and loan forgiveness programs. Rather than lowering your payment amount or providing forgiveness of your educational loans in the future, these programs provide much-needed funds now to make monthly payments on your private educational loans. A student loan repayment assistance program is often available from schools, employers, states and the federal government. Our Charlotte bankruptcy attorney can help you determine if you are eligible for student loan repayment assistance.

How does bankruptcy affect income taxes?

You are not required to file any additional tax forms due to your bankruptcy filing. You file your taxes as usual. However, bankruptcy can have an effect on how much money you receive in your tax return. The effect depends upon what type of bankruptcy you file. To determine how a bankruptcy case could affect your income taxes, consult with our qualified Chapter 7 or Chapter 13 bankruptcy attorney.

Schedule a free initial consultation!

If you are considering filing for bankruptcy protection in the Charlotte metropolitan area and you have student loans or past-due income taxes, contact Schwilm Law Firm, PLLC for a free initial consultation. Call us at 704.567.5252 or contact us online to schedule an appointment at our convenient Charlotte office offering ample parking.