By Ryan C. Wood
Are you having trouble paying your student loans each month? Are you about to graduate and will then have to start making student loan payments shortly? If so, the IBR can help. The what? The IBR is the Income-Based Repayment Plan for student loans. Many of our potential clients have student loans that they would like to discharge when filing bankruptcy. Most bankruptcy lawyers know that the discharge of student loans is generally not possible. Due to the 2005 bankruptcy code changes both private and government student loans are not generally dischargeable. An adversary proceeding could be filed to argue that the student loan borrower does not have the ability to pay the loans back and will not have the ability for a long time. Litigation is tricky though and it is an uphill battle to discharge a student loan in full or partially when filing bankruptcy.
So what other options are there? The IBR allows for the repayment of student loans based upon the number of people you have in your household and the amount of your yearly gross income. You will need to prove that you have a partial financial hardship to qualify though. According to the Consumer Financial Protection Bureau you have a partial financial hardship if the monthly amount you would be required to pay on your IBR-eligible loans under a 10-year standard repayment plan is higher than the monthly amount you would be required to repay under IBR.
Most student loans are eligible for repayment pursuant to the IBR, but private student loans, PLUS loans made to parents, FFEL consolidated loans that include PLUS loans made to parents are not eligible. There are some bad possible consequences to participating in the IBR, like ending up paying more interest and you have to provide documentation every year of your income and family size.
A couple of the most advantageous parts of the IBR are the cancellation provisions. Once you have participated in the income based repayment plan for twenty-five years and satisfy all the requirements you can have the remaining balance of your student loans cancelled in full. Also, if you have worked in public service your payments pursuant to the income based repayment plan will count towards the Public Service Loan Forgiveness Program. For more information about student loan repayment when filing bankruptcy, please consult bankruptcy lawyers in your jurisdiction.