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Disability, Bankruptcy, Taxes & Student Loans

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I was recently determined to be disabled due to mental illness. I have about $60,000 in debt. The largest majority is student loans. The next highest number is back taxes. I need to claim bankruptcy as I can not make these payments against my income from SSDI. Has anyone gone through this process?

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If you expect never to be able to go back to work and your student loans are sponsored through the US Dept of Education (even though they are privately held by a bank, if they were part of your financial aid package instead of a purely private loan from a bank), you can apply to have your loans discharged completely.

Requires certification from your doctor. If you go back to work, your loans will get "reinstated".

Ask the bank that holds your student loans for the paperwork. You might be able to find it on line as well.

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I have filed bankruptcy and my best advice would be call your local Legal Aid office. They will file your bankruptcy for only the cost of filing. If you go to a lawyer they will charge you lawyer fees as well. Make sure you have all of the bills you owe on when you file. It costs $20 to file any additional debts after the bankruptcy has been filed.

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You may be able to get the loans discharged as Wooster said. But declaring bankruptcy does not get rid of student loans. They are the only loans that are not affected by bankruptcy. If you aren't able to get them discharged for disability, you will have to pay them.

Student loans are pretty much attached to you until you pay them off, or die.

I do know someone who got their loans discharged, but it required a lot of paperwork. Although if you are on SSDI, you are used to paperwork.

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I'm not sure whether you can discharge back taxes through bankruptcy. You might want to check on that one, too.

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You can't discharge student loans through a BK, even a chapter 7. I know, I tried in 2006. The only way is to meet a very strict set of criteria offered by the federal government. Being totally disabled is one option. But there is a LOT of paperwork and medical file review that goes along with it. And if you think the SSA is tough, you haven't asked the department of education to erase tens of thousands of dollars in loans. So if you go down that path, make sure you have rock solid medical records going back awhile, and a doctor who will stand firm beside you through the whole process.

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If you're on SSDI, or any type of governmental aid (like foodstamps), and the loans are Stafford loans - you can get deferments indefinitely. You have to keep redoing it because it expires, but you don't have to make payments.

If the debt is through the bank, that's a private loan & they don't have the authority to take your SSDI, so you don't have to pay them.

Taxes, on the other hand, are garnishable and it'd be in you best interest to do what's needed to sort that out.

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As Cetkat says, indefinite deferment may be your best bet with student loans as you can't discharge them during bankruptcy.

As far as back taxes, I don't think they are dischargeable during BK, either. But I'm not sure if disability income can be garnished or not. It also depends if they are federal or state taxes. I have survived a couple of federal and state tax liens (thank you MI!), and had my bank account seized, which is perfectly legal, and also the reason I have some cash literally buried in the woods. It's all sorted out now, but it was painful and stressful at the time.

I would think legal aid could help you sort out the tax stuff as well. I am lucky to be back at work and able to use an accountant, who doesn't freak out about calling the IRS.

A good website on debt is debtorboards.com. The information is geared for people who are fighting off creditor lawsuits (mostly credit card debt), but there is also tax and student loan info. One warning, though - they can be a bit short-tempered and expect you to read everything available first, and then ask a question. Asking a question without doing some research first will get you some borderline rude answers. But they have facts, case law, etc., and like this site, tend to have a brighter group of people than your average forum. Their mods will also bust you for poor writing skills, because if you plan on going to court, you need to have excellent writing skills. If you read there a bit you'll see what I mean.

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I am not a doctor or a health care professional, but I can tell you with certainty, debts owed to the IRS absolutely will not go away because of bankruptcy of any kind or any form. Contact the IRS as soon as possible, they will work with you to make payments. The sooner you deal with them the lower the interest and the fees with be.

Actually, the IRS can be quite reasonable, because the KNOW for a fact, that sooner or later, they are going to get their money.

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Federal taxes are garnishable from SSDI. The general rule is federal money from federal money. I don't know about state ones, FL doesn't have any. That may be an exception. I suppose it depends on whatever laws exist between the specific state and the government.

I have heard about how taxes add up from IRS penalties and how certain services can negotiate to stop that and get you back on track. I don't know any more about that though. I was always in the position where I received money back from taxes.

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I did a bankruptcy in 2004/2005...it was right before the laws changed. I was on SSDI.

Of course, my student loans were not included in the bankruptcy. However, thankfully, I had already paid them down significantly before I did the bankruptcy.

I didn't have back-taxes. And as everyone else has said, I would also strongly encourage you to call the IRS asap so you can work something out. Aren't they supposed to be happier and friendlier these days? ;)

When I did my bankruptcy I already knew what attorney I wanted to use based on recommendations and my own research. At my first meeting the attorney and I discussed most of my financial details and after that I signed a contract with him and paid the deposit. Had I not used him as my attorney, that first meeting would have been free.

I have heard that in some areas bankruptcy attorneys will no longer accept deposits and want the full payment up front. Do as you will...I say everything can be negotiated just as you expect your attorney to negotiate all this financial stuff for you. Meaning - if you don't like the contract, try to negotiate it.

db

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It's horrible to deal with the back taxes, but they won't go away. If you get a letter saying they're about to seize your assets and / or file a lien, trust me, they will! Not to mention the bank fee you'll get hit with for processing the levy. My bank charged a non-refundable $100 fee to send everything in my account to the IRS, and a few years later to the state of CA. The California levy was a screw-up on their part, but it still took over two months to get it sorted out and get my money back.

Calling legal aid first thing Monday morning is your most important activity!

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I forgot to add just for emphasis, not only will bankruptcy not erase your debt to the IRS, they will literally still go after that debt once a person is deceased. Deal with the situation while you still have options.

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