Bankruptcy and Student Debt

10Dec 2014

6 Bad Habits that Can Lead to Bankruptcy

Facing financial ruin and having to declare bankruptcy is a terrifying experience, but one that unfortunately affects many people within the U.S. In order to make sure that you’re financially set and have all of your monetary affairs in order, here are six bad habits that can lead to bankruptcy that you should absolutely avoid:

1. Not Paying Your Bills on Time

One of the worst habits that a consumer can get into is failing to pay bills on time, regardless of what type of bill it is. Whether it’s a student loan payment, a phone bill, household utilities, a credit card, a car payment, or a mortgage, paying your bills on time is important. When a consumer fails to pay his bills on time, a black mark against the consumer’s credit history is often made – as a credit score gets worse, the chances of having to declare bankruptcy skyrocket.

2. Having Multiple Credit Cards

The second biggest mistake that a consumer can make is having an excessive amount of credit cards. While one, two, or even three credit cards may be okay for the person who knows how to manage his debt, any more than that, and even a financially responsible consumer might find themselves in financial trouble. Having too many credit cards is risky because it allows a person with poor spending habits to rack up monstrous amounts of debt with a variety of different companies. If a consumer can’t pay back his credit card on time or in full every month, then his credit score takes a hit. Plus, having multiple credit cards makes a person a more likely victim for credit card fraud.

3. Failing to Budget

Perhaps the single most debilitating bad financial habit a consumer can have is failing to create a budget within his means. Financial solvency is all about establishing a reasonable and manageable budget, and then sticking to it. Too many consumers fail to create a financial plan that works for them, and then end up spending way beyond their means. A budget should include all of the basic monthly and yearly expenses – like rent, food, utilities, a car payment, etc. – as well as extra expenses like eating out, and a savings account. CNN recommends saving 10 to 15 percent of income.

4. Not Creating an Emergency Fund

Let’s face it: emergencies happen. Maybe you’ve locked yourself out of your apartment and require a locksmith (which costs approximately $100); maybe your car gets a flat tire; maybe you have an urgent and unexpected ER trip – whatever it is, being prepared with cash on hand in the event of an emergency is essential to avoiding bankruptcy. An emergency fund and a savings account are not the same thing. The former should be used in an event of an emergency, and savings shouldn’t be used at all – savings are for retirement purposes, or large financial expenses in life, like buying a house or getting a college degree.

5. Making the Minimum Payment Only

All credit cards companies issue a monthly statement, which informs the debtor of how much they owe. However, the credit card company also highlights on the statement the minimum monthly payment that is due. For example, if a person has a debt of $200 that month, they may only have to pay back $35 of it that month. While this may seem advantageous, the truth is that this can be crushing for a consumer. When you fail to pay back the full amount that you’ve borrowed every month, you’ll get charged an extreme amount of money in interest. To help your credit score, and to avoid accumulating more debt than you really owe, always borrow within your means, and pay your credit card back in full every month.

6. Buying the Most Expensive Version of Everything

Even if you are living within an established budget, that doesn’t mean that you need to be buying the most expensive version of everything. Often times, people will choose to buy cars, homes, and other pricey items that they can technically afford, even though the purchase means saving less and living more lavishly than necessary. Because you never know when a financial emergency might happen, remind yourself that while you definitely deserve nice things, you might not need the latest and greatest device, home, or vehicle on the market.

In order to avoid bankruptcy, make sure to set a budget, live within your means, avoid accumulating more debt than you can afford, create an emergency fun, and always pay your bills on time and in full.



17Jul 2014
Bankruptcy and Student Loan Debt | Start Fresh Northwest Bankruptcy and Debt Consolidation

Can Bankruptcy Remove Student Loan Debt?

Having debt is a burden to anyone. If you are dealing with high amounts of credit card debt, medical debt, and student loan debt, you might consider bankruptcy. Will bankruptcy discharge student loan debt? This is something that has been questioned for years. Here are some things you need to know about Chapter 7 and Chapter 13 bankruptcy, and how it will handle student loan debt.


Meeting with an attorney is the best way to figure out what you can do about your financial hardships. There are several solutions available for people seeking to discharge their debts. To have your student loan debt discharged, you need to declare undue hardship. Different courts will need to review your hardship situation to determine if student loan debt can be discharged. If you have a low income, you have a greater chance of getting your student loan debt discharged. It is important to know that most courts are hesitant to discharge student loan debt.

The Brunner Test

One of the things people will undergo to determine if they can discharge student loan debt is to undergo the Brunner test. This test will determine if you meet certain standards including the following:

  • Poverty. This test helps the courts to know about your current income and expenses. Can you maintain a standard of living for yourself and your dependants? If the court forces you to repay your loans, will you be able to afford it with your current income?
  • Persistence. Will your current financial position continue for several years? The court needs to determine if you can continue with a repayment period for several years based on your job.
  • Good faith. Have you made good faith efforts to repay your student loans?

Usually the courts will say you can pay or you cannot pay. To them it is an all or nothing situation to pay your student loan debt.

Totality of the Circumstances Test

Certain courts will use a test called the totality of the circumstances. This court will look at the relevant factors in your case to see if you can repay your student loan debt. You must show your loan began more than seven years ago and repaying the debt will be a financial burden to your life. Some courts enroll you in a payoff strategy to reduce the student loan debt burden, but this can still have a large financial burden on your life.

Meeting with An Attorney

The best thing you can do is meet with an attorney to talk about your situation. The bankruptcy courts differ in each area. A local bankruptcy attorney will help you determine if you can afford to repay the student loans, or if you can qualify to have them discharged through bankruptcy.

Filing with Bankruptcy Court

To discharge your student loan debt, you need to file a formal complaint with the bankruptcy court. This form is called a Complaint to Determine Dischargeability. You then need to prove to the court that you cannot pay off your debt and you are dealing with undue financial hardship due to the debt.

Finding Defenses

Several attorneys will work hard to find a defense to help you discharge your debt. Certain defenses often include deceptive business practices or fraud on the part of the school. Several trade schools and vocational schools often deceive people to get them enrolled in the school. If you succeed with this defense, you will be able to get rid of the student loan debt. In most cases, an attorney can help to bring you a successful outcome when you are dealing with student loan bankruptcy or bringing a defense to the loan.

Are All Student Loan Debts Discharged?

What will happen if the court doesn’t discharge your student loan debts? There are several things that will happen after this point. In Chapter 7 bankruptcy, if the courts deem your student loan debt is not causing undue hardship, you are still responsible for them when the case ends. With Chapter 13 bankruptcy, you can have alternative ways to repay the student loan debt. A reduced payment amount is the most common agreement for student loan debt repayment. You will be given a repayment plan, and then you are held to the complete payment left once the payment plan ends. Your attorney can help you work with the banks to figure out the best situation to help you properly repay your student loan debt so that it doesn’t lead to increased financial hardship.

Other Ways to Handle Student Loan Debt

If the student loan debt is the main issues causing you financials stress, there are some other things you can do. Contact the lender directly to negotiate a new payment agreement. Most banks are willing to extend the loan term to allow for a smaller monthly payment. This is a great way to keep the payments affordable for your situation. The other thing you can try doing it calling a debt consolidation company. This is a non-bankruptcy method to deal with student loan debt as they help to negotiate for a lower amount to repay the debt. Not all banks are willing to accept a lump sum payment, so it is essential to do what you can to focus on repaying the debt as quickly as possible.