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Bankruptcy student loans: California residents may consider deferment

Those in California buckling under student loan debt may consider loan deferment and bankruptcy. Both options could pave the way to financial freedom.

If you feel you cannot dig your way out of student loan debt no matter what you try, you may consider filing for bankruptcy. While you usually cannot discharge student loan debt in California with bankruptcy, you can still file and apply for student loan deferment to give yourself breathing room and space to create a financial plan of attack. Learn how deferment works and your options for requesting a deferment.

How deferment works

Deferment makes for a viable option for those who experience temporary financial struggles while attempting to repay student loans. During your deferment period, you do not make payments, but you continue accruing interest that increases your loan amount. For that reason, you may want to at least pay down your interest while delaying regular loan payments.

Deferment options

You have different options for deferment. To qualify for economic hardship deferment for three years, you must serve in the Peace Corps, earn below the current poverty guideline while working full time or receive welfare or another means-tested benefit. Depending on your master’s or doctoral graduate fellowship program, you may meet the requirements for graduate fellowship deferment. Are you enrolled in a full- or part-time career school or college? Depending on the institution, you could qualify for an in-school deferment. Even if you no longer qualify as a half-time student in the future, if you received a Direct PLUS Loan, you gain an additional six months of deferment.

Those who may qualify for military service and post-active duty student deferment include service members who finished active duty service with a qualifying grace period and those on active duty military service during times of war or an armed forces operation. The same applies to service members on active duty for national emergencies.

Do you currently receive unemployment benefits? Or maybe you desire full-time employment but cannot land a job. Either way, you could qualify for unemployment deferment for three years. Those enrolled in qualifying rehabilitation training programs that offer drug abuse, vocational, mental health or alcohol abuse treatment could meet requirements for rehabilitation training deferment.

Income-driven repayment plan

If you do not qualify for a deferment, or if you would rather not deal with mounting interest, look into an income-driven repayment plan while exploring your options for bankruptcy. That way, your family size and income determine your monthly payments. You could even qualify for an amount as low as $0, but you may still have to pay taxes on your forgiven loan amount.

Do you feel that combining bankruptcy and student loan deferment could make your financial life in California easier? If so, reach out to a legal professional to learn more about your rights and your options.