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The Ultimate Guide to Bankruptcy –Chapter 7 &13

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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During the peak of the financial crisis that started in 2007, bankruptcy was considerably more common than it is today. During the 12-month period that ended in September 2010, a shocking number of bankruptcies — 1.6 million — were filed.

In the year that ended March 31, 2018, annual bankruptcy filings totaled 779,828. That’s a 1.8 percent drop from the year prior, noting an ongoing decline in bankruptcies since 2010.

Fewer bankruptcies is good news for consumers and the economy, but not everyone is so lucky. Due to financial issues such as job loss, divorce, and chronic overspending, many consumers still opt for bankruptcy as a solution to their money problems.

This guide was created to help explain the different types of bankruptcy, how the process works and the type of consumer who would benefit most from the debt resolution that bankruptcy provides. If you’re considering bankruptcy to get your finances back on track, keep reading to learn more.

What is bankruptcy?

Bankruptcy is a process that helps consumers liquidate assets to pay off their debts when they can no longer manage them on their own. The process is outlined in Article 1, Section 8 of the U.S. Constitution. The Bankruptcy Code, which was enacted by Congress in 1978, is the uniform federal law that governs all bankruptcy cases in the U.S.

Besides consumer bankruptcy, bankruptcy laws also protect businesses that are struggling financially. The types of bankruptcy available to consumers, Chapter 7 and Chapter 13, help debtors resolve delinquent debts and shore up their finances, although they work in different ways.

While bankruptcy can result in the loss of personal property and assets through liquidation, it is often the best choice for consumers:

  • After a Chapter 7 bankruptcy, consumers are often able to enjoy a fresh start that is free from unsecured debts that previously plagued their finances.
  • After a Chapter 13 bankruptcy, consumers are typically able to begin repaying a percentage of what they owe and get back on track financially.

When should you file for bankruptcy?

While many consumers struggle to pay unsecured debts, bankruptcy is a solution intended for the most extreme cases — cases where families cannot get out of debt any other way. If a debtor has the financial means to repay their debts and gain a fresh start on their own, bankruptcy attorneys would likely counsel them on other options, such as meeting with a credit counselor and starting a debt management plan.

Yet there are plenty of cases when bankruptcy is the best option despite its consequences. For the most part, it makes sense to file for bankruptcy under the following circumstances:

  • You cannot pay down your debt on your own and you continue falling further and further behind. “It makes sense to file bankruptcy when you can no longer keep up with your bills,” said Leslie H. Tayne, a debt resolution attorney and founder of Tayne Law Group, based in Melville, N.Y. “If commercial creditors are breathing down your neck or if you are in danger of losing your home, it may then make sense to file bankruptcy.”
  • You have no real property and want to discharge your debts. While Chapter 13 bankruptcy requires you to reorganize your debts and pay them off, Chapter 7 bankruptcy allows you to discharge debts completely. For that reason, bankruptcy attorney Barry J. Roy of Rabinowitz, Lubetkin & Tully LLC in Livingston, N.J., said Chapter 7 makes sense when you don’t have many assets but desire to discharge your unsecured debts.
  • You are struggling with unsecured debts and don’t want to lose your home. Roy said Chapter 13 makes sense for consumers who need some help with their debts but have considerable equity in their homes they want to protect.

According to Kim Cole, community engagement manager at credit counseling agency Navicore Solutions, bankruptcy can make sense when life circumstances cause people’s finances to spiral out of control. Very often, she said, her company works with consumers who have racked up insurmountable amounts of medical debt that they couldn’t pay off if they tried. Other times, bankruptcy is the result of job loss or another unintended loss of income.

Insurmountable amounts of credit card debt can also be helped with bankruptcy, particularly when the consumer has so much debt that they cannot keep up with the payments and keep a roof over their head.

On the flip side, there are plenty of times it doesn’t make sense to file bankruptcy. For example:

  • Your debt doesn’t qualify for bankruptcy. Not all types of debt qualify for bankruptcy, which is why it’s not a solution for everyone. Cole said her company receives many inquiries about student loan debt because many people don’t realize student loan debt is not dischargeable in bankruptcy. Other types of debt that do not qualify for bankruptcy include alimony, child support, most taxes and debts resulting from fraud.
  • You have too many assets. Chapter 7 bankruptcy has a means test you must pass to qualify. If you earn too much, you may not be eligible. Chapter 13 bankruptcy also has a limit on the amount of assets you can have to qualify.
  • You can afford to pay down your debts. Cole said some families are better off with a debt management plan and credit counseling, provided they have the financial means to repay debt on their own.
  • The root cause of your debts hasn’t been settled. Florida consumer protection lawyer Donald E. Petersen said consumers should not file bankruptcy until the root cause of their financial distress is solved. “If a consumer has severe health problems and is incurring medical bills that they are unable to pay, do not file bankruptcy until after the course of treatment is complete,” he said. “Similarly, consumers who are unable to pay their bills because they are unemployed or underemployed should not file bankruptcy until their employment status has stabilized at compensation that they can live on without accumulating additional debts in order to meet ordinary living expenses.”

Chapter 7 vs. Chapter 13: What’s the difference?

The two most common types of bankruptcy — Chapter 7 and Chapter 13 — work differently to help consumers recover from too much debt. The charts below outline how each process works and why these two types of bankruptcy are geared at different consumers:

Chapter 7Chapter 13

Length of process

If you filed for Chapter 7 bankruptcy today, your meeting of creditors would be filed in three to four weeks. At this meeting, you will meet with your trustee.

“You can’t get your discharge until 60 days after that meeting,” Roy said. For that reason, Chapter 7 bankruptcy typically takes three to six months.

Chapter 13 bankruptcy is more complicated than Chapter 7 bankruptcy since it requires you to restructure your debts. This type of bankruptcy requires you to make a court-approved repayment plan to show how you will pay off your debt within the next three to five years.

Fees

With Chapter 7 bankruptcy, the courts levy several charges — a $245 case filing fee, a $75 miscellaneous administrative fee and a $15 trustee surcharge. You will also have to cover the costs of court-required credit counseling before and after you file, which will cost $50 to $100 per session.

Finally, you will likely need to hire an attorney to oversee your case. Attorney fees for Chapter 7 bankruptcy can vary widely depending on where you live, but can range from $800 to $5,000.

With Chapter 13 bankruptcy, the courts levy several charges — a $235 case filing fee and a $75 miscellaneous administrative fee. You will also have to cover the costs of court-required credit counseling before and after you file, which will cost $50 to $100 per session.

Since Chapter 13 bankruptcy is more complex and takes longer, attorney fees may be on the higher end of the scale (up to $5,000 and potentially more).

Types of debt forgiven

When you file for Chapter 7 bankruptcy, you have what is called “pre-filing debt” and “post-filing debt.” Pre-filing debt is debt you racked up before you filed for bankruptcy, whereas post-filing debt is debt you racked up since you filed. With Chapter 7 bankruptcy, only eligible pre-filing debt can be included.

Debts that can be included in a Chapter 7 bankruptcy are of the unsecured kind, meaning they are not secured with collateral. Debts that can qualify include but are not limited to:

  • Credit card debt, including late fees and interest charges

  • Accounts in collections

  • Medical bills

  • Personal loans

  • Utility bills that are past due

  • Auto accident claims that aren’t a result of drunken driving

  • Money owed under lease agreements, including past-due rent

  • Civil court judgments, provided they are not the result of fraud


Chapter 13 bankruptcy allows you to restructure your debts and catch up on late payments for secured assets. With that in mind, some of the debts that can be forgiven may only be partially forgiven through the Chapter 13 bankruptcy process.

Debts that can qualify for Chapter 13 bankruptcy include but are not limited to:

  • Credit card debt, including late fees and interest charges

  • Accounts in collections

  • Medical bills

  • Personal loans

  • Utility bills that are past due

  • Auto accident claims that aren’t a result of drunken driving

  • Money owed under lease agreements, including past-due rent

  • Civil court judgments provided they are not the result of fraud

  • Debts incurred through a property settlement agreement in divorce or separation proceedings

  • Outstanding debts from a prior bankruptcy if the court denied your discharge

  • Loans against a retirement account

  • Homeowners association or condominium fees


Eligibility requirements

To qualify for Chapter 7 bankruptcy, you must have little disposable income. A means test is applied that compares your income to the median income in your state. If your average monthly income for the six-month period leading up to your bankruptcy filing is less than the median income for the same household size in your state, you automatically qualify.

If your income is above the median, an additional means test is applied that deducts specific monthly expenses from your average monthly income over the previous six months. If you can prove you have little to no disposable income after repaying your debts, you may qualify for Chapter 7 bankruptcy.

To be eligible for Chapter 13 bankruptcy, you must reside in or own property in the U.S., have a regular income and have unsecured debts of less than $394,725. You must also have secured debts of less than $1,184,200.

Individuals are ineligible for Chapter 13 bankruptcy if, in the 180 days prior, the debtor had a bankruptcy case dismissed by the court. You must also receive credit counseling from an approved credit counseling agency within 180 days before filing Chapter 13 bankruptcy.

Credit impact

Roy said Chapter 7 bankruptcy is the “absolute worst thing you can do to your credit score.” But he also notes that if your debts are considerable enough and your income is so low that you cannot keep up, it could still be the best option for you.

Also note that a Chapter 7 bankruptcy will stay on your credit report for 10 years. Chapter 7 bankruptcy could also lower your credit score significantly (up to 200 points) at first.

Chapter 13 bankruptcy stays on your credit report for seven years. You may also see your credit score drop up to 200 points once you file.

Roy notes that Chapter 13 bankruptcy is also catastrophic for your credit score, but that you may be able to rebuild credit quickly with smart financial management.


What happens to your assets

Each state has a set of exemptions that apply in Chapter 7 bankruptcy. This set of exemptions and limits determines which assets you can keep once your bankruptcy has been completed.

These exemptions vary by state but typically let you keep a certain amount of personal property, automobiles up to certain limits and some level of equity in your home.

Your remaining assets will be sold as part of the Chapter 7 bankruptcy process. The monies raised will be used to satisfy part of your debt with your creditors.

With Chapter 13 bankruptcy, you are able to keep all your property. But you will need to restructure your debts and make payments toward some of the amounts you owe.

Chapter 13 bankruptcy also allows you to “exempt” some of your personal property, such as some of the equity you have in your home. But you will typically wind up paying an amount toward your debts that is equal to your nonexempt assets.

This process may allow you to discharge some debts while also staying in your home.

What happens to your debts

With Chapter 7 bankruptcy, most of your unsecured debts will be forgiven and discharged. But note that many debts — such as student loans, child support or alimony — do not qualify.

With Chapter 13 bankruptcy, your debts are restructured and a payment plan is conceived. The payment plan may offer some relief of your debts, meaning you may not have to pay back 100% of what you owe.

Which type of bankruptcy is right for me?

Both types of bankruptcy can be helpful for consumers struggling with debt, but the eligibility requirements for Chapter 7 bankruptcy make it so you will likely need to file Chapter 13 bankruptcy if your income is too high or you have significant assets.

With that in mind, here are some examples of when each type of bankruptcy might be best.

Chapter 7 may be best if …

  • Your income is low enough to qualify. Roy said that if someone has modest or low earnings and significant credit card debt they can never pay off, Chapter 7 bankruptcy can make sense. “It depends on their financial situation, income and debts,” he said.
  • You do not have significant assets or equity to protect. “People file Chapter 7 bankruptcy because they have no real property and want to discharge their debts,” Roy said.

– Click here to learn everything you need to know about Chapter 7 Bankruptcy

Chapter 13 may be best if …

  • You have significant assets you want to keep. “You’re going to file a Chapter 13 if you have equity in real or personal property you want to keep,” Roy said. “Usually people file Chapter 13 because they want to continue living in their own home.”
  • You have enough income to repay some or all of your debts. Because Chapter 13 restructures most of your debts instead of discharging them, you need adequate income to be able to repay some of your debts.

– Click here to learn everything you need to know about Chapter 13 Bankruptcy

How to file Chapter 7 bankruptcy

If you decide Chapter 7 bankruptcy is your best option, here are the steps you’ll take along the way.

Step 1: Gather all bills and financial information.

You’ll need documentation of your debts, your tax returns and your monthly bills before you move on to the next step.

Step 2: Receive mandatory credit counseling.

If you are a candidate for Chapter 7 bankruptcy, you will need to complete mandatory pre-filing credit counseling with an approved credit counseling agency. During this step, a credit counselor will go over your income, debts and regular bills to determine your best options, including alternatives to bankruptcy. The cost of this type of credit counseling session is typically $50 to $100.

Step 3: You will need to meet with a bankruptcy attorney.

Tayne recommends doing some research on attorney options ahead of time, including reading reviews and meeting with more than one to find the best one for you. Once you meet with an attorney, they will go over your financial information and debts and advise you on your next best steps.

Step 4: File for bankruptcy with your attorney.

Once you have completed credit counseling, you can start your bankruptcy case with your attorney. This involves filing a packet of forms with the local bankruptcy court. Required forms include the bankruptcy petition, forms for your financial information, a list of your income and expenses, and proof you have passed the Chapter 7 means test. You will also list your property exemptions based on limits in your state.

With Chapter 7 bankruptcy, you need to pay several charges upfront — a $245 case filing fee, a $75 miscellaneous administrative fee and a $15 trustee surcharge. You will also need to negotiate attorney fees and payment, which can vary widely depending on your unique case details and where you live.

Once you have taken this step to file for bankruptcy and your case is ongoing, creditors can no longer take collections actions against you.

Step 5: Your trustee works on your behalf.

Once your Chapter 7 bankruptcy is underway, a trustee takes over your case and begins reviewing your paperwork.

Step 6: You will have a meeting of creditors, also called a “341 meeting.”

After you begin the initial bankruptcy proceedings, you’ll receive a notice from the court about your meeting of creditors. You will need to be present at this meeting to answer questions from the trustee and any creditors who may be present at the meeting.

Step 7: You are determined eligible for Chapter 7 bankruptcy.

If the trustee deems you are eligible for Chapter 7 bankruptcy, you can move forward with Chapter 7 bankruptcy protection. If you are deemed ineligible for Chapter 7 bankruptcy due to your income or income-to-expenses ratio, you may have the option to file for Chapter 13 bankruptcy instead.

Step 8: Your trustee deals with nonexempt property, and you must also deal with secured debts.

If you have assets or property that is above the exempted amounts in your state, the trustee is charged with deciding which assets to seize and sell. Monies resulting from the sale of this property will be used by the trustee to satisfy some of your creditors.

If you have debts backed by collateral — such as an auto loan that is secured by a car — you must give it back, pay the creditor what it’s worth or reaffirm the debt. Reaffirming your debts is a process where you agree that you still owe an amount after your bankruptcy case is over.

Step 9: Take a credit counseling course.

Once your Chapter 7 bankruptcy case has been filed (but not discharged), you must complete a second credit counseling education course. This course may cost $50 to $100.

Step 10: Bankruptcy is over.

Once you file for Chapter 7 bankruptcy, it can take three to six months to receive your discharge. Your bankruptcy case will be closed now.

How to file Chapter 13 bankruptcy

Step 1: Gather all bills and financial information.

Pull together a packet of documentation that includes information on all your debts, your tax returns and your monthly bills.

Step 2: Receive mandatory credit counseling.

If you are a candidate for Chapter 13 bankruptcy, you will need to complete mandatory pre-filing credit counseling with an approved credit counseling agency. The cost of this type of credit counseling session is typically $50 to $100. During this meeting, a credit counselor will go over your finances, including your debts and your income, to counsel you on your options.

Step 3: You will need to meet with a bankruptcy attorney.

Conduct some research on attorneys ahead of time. Read reviews online and consider meeting with more than one attorney in your area. Your bankruptcy attorney will help put together the forms required to file Chapter 13. This includes a bankruptcy petition, debt and income schedules, and a Chapter 13 repayment plan you have worked on with your attorney to create.

You will also need to pay several court fees at this time, including a $235 case filing fee and a $75 miscellaneous administrative fee. Attorney fees are additional and may vary. Since Chapter 13 bankruptcy is so complex, it can cost up to $5,000 or more for attorney assistance.

Step 4: Get matched to a court-appointed trustee.

Your bankruptcy trustee will oversee your case and review your debt repayment plan. They will also collect payments on this plan once it’s underway, along with distributing funds to your creditors.

Step 5: Receive an automatic stay.

Once your bankruptcy is underway, an automatic stay will be in effect. This process stops creditors from pursuing collections actions against you.

Step 6: Begin your repayment plan.

Begin making monthly payments on your debt repayment plan within a month after you file for Chapter 13 bankruptcy.

Step 7: Attend a meeting of creditors.

You will receive notice about your meeting of creditors (or “341 hearing”) around a month after you file for bankruptcy. During this meeting, your trustee and any creditors that are represented will ask you questions about your income, your debts, and your monthly expenses.

Step 8: Attend a confirmation hearing for your bankruptcy.

Either you, your attorney or both of you will need to attend a court confirmation hearing. During this hearing, any objections from creditors or your trustee will be mentioned. Ideally, you will leave your confirmation hearing with your debt repayment plan and bankruptcy confirmed.

Step 9: File proofs of claim or object them.

During the Chapter 13 bankruptcy process, your creditors file proofs of claim that list debts owed with the goal of getting paid. You can either object proofs of claim that may be inaccurate or file proofs of claim so that you can pay a debt as part of your case.

Step 10: Begin debt repayment and meet with a credit counselor again.

Once your Chapter 13 bankruptcy is underway, you will make debt payments to your trustee according to your plan. You will also need to complete your second meeting with a credit counseling agency at an average cost of $50 to $100.

Step 11: Your bankruptcy case ends.

Most Chapter 13 bankruptcy cases take three to five years from start to finish. During that time, you will continue making debt payments until your plan is complete. At that time, the court will grant a discharge of your Chapter 13 bankruptcy.

Life after bankruptcy: 3 tips to recover

Bankruptcy may be a drastic solution to debt and income issues, but it is often the only way for consumers to get a fresh start. Roy implores you to consider what bankruptcy could mean to someone who is truly struggling.

“If you walked in here and told me you had $60,000 in credit card debt and you were only making minimum payments half the time and only make $20,000 per year, there’s no way you’re ever going to be able to pay off that debt,” he said.

The best thing you can do is file bankruptcy and discharge your debts so you can get a fresh start. “Otherwise, you’re just going to linger in credit card debt hell for years,” he said. “Better off to bite the bullet and file for bankruptcy so you can move on.”

Still, that “moving on” part can be difficult for consumers. Here are some tips that can help you recover from bankruptcy and get on better financial footing:

1. Listen closely to advice offered in your credit counseling sessions.

When you meet with a credit counselor before and after you file bankruptcy, you will receive counseling on how to improve your finances in the future. Take these lessons to heart and find ways to lower your expenses so that you are less likely to get in financial trouble in the future.

2. Strive to build a lifestyle without credit or debt.

Try to build a lifestyle that is less reliant on credit and debt. Believe it or not, many card issuers will grant you a credit card within months after your bankruptcy is discharged. It is up to you to fight off the temptation to borrow so that you can avoid getting back into debt.

3. Start using a monthly budget.

Try writing down all your monthly bills and expenses and estimating variable categories, such as food and entertainment. Set limits on how much you can spend and make sure you’re designating some of your monthly income toward savings and investments. Building up a reasonable emergency fund can also help you avoid debt in the future.

Frequently asked questions (FAQs)

These frequently asked questions and answers can help you learn more about filing Chapter 7 and Chapter 13 bankruptcy.

Filing for Chapter 7 or Chapter 13 bankruptcy can cause immediate damage to your credit score, often resulting in a loss of up to 200 points. But your credit score may have already been damaged due to late payments and other financial issues leading up to your bankruptcy filing.

Chapter 7 bankruptcy stays on your credit report for up to 10 years, while Chapter 13 bankruptcy stays on your credit report for up to seven years. Both types of bankruptcy will cause damage to your credit score.

Chapter 13 bankruptcy requires a $235 case filing fee and a $75 miscellaneous administrative fee, plus attorney costs. Chapter 7 bankruptcy comes with a $245 case filing fee, a $75 miscellaneous administrative fee and a $15 trustee charge, as well as attorney charges. With both types of bankruptcy, you are also required to pay for two credit counseling sessions that cost $50 to $100 each.

Both Chapter 7 and Chapter 13 bankruptcy can allow you to keep your house if requirements are satisfied. Chapter 13 bankruptcy is especially popular with homeowners who have considerably equity since it allows them to stay in their home and continue making payments while they pay off all, or a portion of, their other debts through a repayment plan..

Both Chapter 7 and Chapter 13 bankruptcy require you to go through credit counseling before and after you file. These sessions cost between $50 and $100 depending on the credit counseling agency with which you work, and they are mandatory.

You must reside in or own property in the U.S., have a regular income and have unsecured debts of less than $394,725 to qualify for Chapter 13 bankruptcy. You must also have secured debts of less than $1,184,200. You must not have had a bankruptcy case dismissed in court for 180 days before filing.

If your average monthly income for the six-month period leading up to your bankruptcy filing is less than the median income for the same-size household in your state, you automatically qualify. If your income is above the median, you must pass an additional means test that compares your income to specific monthly expenses to prove you have little to no disposable income.

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Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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7 Best Options to Refinance Student Loans – Get Your Lowest Rate

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Updated: December 2, 2018

Are you tired of paying a high interest rate on your student loan debt? You may be looking for ways to refinance your student loans at a lower interest rate, but don’t know where to turn. We have created the most complete list of lenders currently willing to refinance student loan debt. We recommend you start here and check rates from the top 7 national lenders offering the best student loan refinance products. All of these lenders (except Discover) also allow you to check your rate without impacting your score (using a soft credit pull), and offer the best rates of 2018:

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.90% - 8.02%


Fixed Rate*

2.56% - 7.30%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on SoFi’s secure website

EarnestA+

20


Years

3.89% - 7.89%


Fixed Rate

2.47% - 6.97%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on Earnest’s secure website

CommonBondA+

20


Years

3.67% - 7.25%


Fixed Rate

2.70% - 7.44%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on CommonBond’s secure website

LendKeyA+

20


Years

5.10% - 8.93%


Fixed Rate

2.68% - 8.96%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
Learn more Secured

on LendKey’s secure website

Laurel Road BankA+

20


Years

3.50% - 7.02%


Fixed Rate

3.23% - 6.65%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on Laurel Road Bank’s secure website

Citizens BankA+

20


Years

3.90% - 9.99%


Fixed Rate

3.00% - 9.74%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured

on Citizens Bank (RI)’s secure website

Discover Student LoansA+

20


Years

5.74% - 8.49%


Fixed Rate

4.99% - 7.99%


Variable Rate

$150k


Undergraduate /
Graduate
Learn more Secured

on Discover Bank’s secure website

You should always shop around for the best rate. Don’t worry about the impact on your credit score of applying to multiple lenders: so long as you complete all of your applications within 14 days, it will only count as one inquiry on your credit score.

We have also created:

But before you refinance, read on to see if you are ready to refinance your student loans.

Can I get approved?

Loan approval rules vary by lender. However, all of the lenders will want:

  • Proof that you can afford your payments. That means you have a job with income that is sufficient to cover your student loans and all of your other expenses.
  • Proof that you are a responsible borrower, with a demonstrated record of on-time payments. For some lenders, that means that they use the traditional FICO, requiring a good score. For other lenders, they may just have some basic rules, like no missed payments, or a certain number of on-time payments required to prove that you are responsible.
LenderMinimum credit scoreEligible degreesEligible loansAnnual income
requirements
Employment
requirement
 
SoFi

Good or Excellent
score needed

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on SoFi’s secure website

Earnest

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on Earnest’s secure website

CommonBond

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on CommonBond’s secure website

LendKey

680

Undergraduate
& Graduate

Private & Federal

$24K

Yes

Learn more Secured

on LendKey’s secure website

Laurel Road Bank

Not published

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on Laurel Road Bank’s secure website

Citizens Bank

680

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

$24K

Yes

Learn more Secured

on Citizens Bank (RI)’s secure website

Discover Student Loans

Not published

Undergraduate
& Graduate

Private & Federal

None

Yes

Learn more Secured

on Discover Bank’s secure website

Diving Deeper: The best places to consider a refinance

If you go to other sites they may claim to compare several student loan offers in one step. Just beware that they might only show you deals that pay them a referral fee, so you could miss out on lenders ready to give you better terms. Below is what we believe is the most comprehensive list of current student loan refinancing lenders.

You should take the time to shop around. FICO says there is little to no impact on your credit score for rate shopping as many providers as you’d like in a single shopping period (which can be between 14-30 days, depending upon the version of FICO). So set aside a day and apply to as many as you feel comfortable with to get a sense of who is ready to give you the best terms.

Here are more details on the 7 lenders offering the lowest interest rates:

1. SoFi

LEARN MORE Secured

on SoFi’s secure website

Read Full Review

SoFi : Variable rates from 2.56% and Fixed Rates from 3.90% (with AutoPay)*

SoFi was one of the first lenders to start offering student loan refinancing products. More MagnifyMoney readers have chosen SoFi than any other lender. The only requirement is that you graduated from a Title IV school. In order to qualify, you need to have a degree, a good job and good income.

Pros Pros

  • Borrowers can refinance private, federal and Parent PLUS loans together: Through SoFi, borrowers have the ability to combine all of their student loans (private, federal and Parent PLUS) when refinancing. Along with the ability to refinance Parent PLUS loans, parents can also transfer the PLUS loans into their child’s name.
  • Access to career coaches: SoFi offers their borrowers access to their Career Advisory Group who work one-on-one with borrowers to help plan their career paths and futures.
  • Unemployment protection: SoFi offers some help if you lose your job. During the period of unemployment they will pause your payments (for up to 12 months) and work with you to find a new job. However, just remember that any unemployment protection offered by SoFi would be weaker than the income-driven repayment options of federal loans.

Cons Cons

  • No cosigner release: While they offer you the opportunity to refinance with a cosigner, it is important to know that SoFi does not offer borrowers the opportunity to release a cosigner later on down the road.
  • You lose certain protections if you refinance a federal loan: This con is not unique to SoFi (and you will find it with all other private lenders). Federal loans come with certain protections, including robust income-driven payment protection options. You will forfeit those protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

SoFi is really the original student loan refinance company, and is now certainly the largest. SoFi has consistently offered low interest rates and has received good reviews for service. In addition, SoFi invests heavily in building a “community” – which means you can start to get other benefits once you are a SoFi member.

SoFi has taken a radical new approach when it comes to the online finance industry, not only with student loans but in the personal loan, wealth management and mortgage markets as well. With their career development programs and networking events, SoFi shows that they have a lot to offer, not only in the lending space but in other aspects of their customers lives as well.

2. Earnest

LEARN MORE Secured

on Earnest’s secure website

Read Full Review

Earnest : Variable Rates from 2.47% and Fixed Rates from 3.89% (with AutoPay)

Earnest focuses on lending to borrowers who show promise of being financially responsible borrowers. Because of this, they offer merit-based loans versus credit-based ones. 

Pros Pros

  • Flexible repayment options: Earnest offers some of the most flexible options when it comes to repayment. They allow you to choose any term length between 5-20 years. You can choose your own monthly payment, based upon what you can afford (to the penny). Earnest also offers bi-weekly payments and “skip a payment” if you run into difficulty.
  • Ability to switch between variable and fixed rates: With Earnest, you can switch between fixed and variable rates throughout the life of your loan. You can do that one time every six months until the loan is paid off. That means you can take advantage of the low variable interest rates now, and then lock in a higher fixed rate later.
  • Loans serviced in-house: Earnest is one of just a few lenders that provides in-house loan servicing versus using a third-party servicer.

Cons Cons

  • Cannot apply with a cosigner: Unlike many of the other lenders, Earnest does not allow borrowers to apply for student loan refinancing with a cosigner.
  • No option to transfer Parent PLUS loans to Child: If you are a parent that is looking to refinance your Parent PLUS loan into your child’s name, it is important to note that this cannot be done through refinancing with Earnest.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

Earnest, who was recently acquired by Navient, is making a name for themselves within the student refinancing space. With their flexible repayment options and low rates, they are definitely an option worth exploring.

3. CommonBond

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CommonBond : Variable Rates from 2.70% and Fixed Rates from 3.67% (with AutoPay)

CommonBond started out lending exclusively to graduate students. They initially targeted doctors with more than $100,000 of debt. Over time, CommonBond has expanded and now offers student loan refinancing options to graduates of almost any university (graduate and undergraduate).

Pros Pros

  • Hybrid loan option: CommonBond offers a unique “Hybrid” rate option in which rates are fixed for five years and then become variable for five years. This option can be a good choice for borrowers who intend to make extra payments and plan on paying off their student loans within the first five years. If you can a better interest rate on the Hybrid loan than the Fixed-rate option, you may end up paying less over the life of the loan.
  • Social promise: CommonBond will fund the education of someone in need in an emerging market for every loan that closes. So not only will you save money, but someone in need will get access to an education.
  • “CommonBridge” unemployment protection program: CommonBond is here to help if you lose your job. Similar to SoFi, they will pause your payments and assist you in finding a new job.

Cons Cons

  • Does not offer refinancing in the following states: Idaho, Louisiana, Mississippi, Nevada, South Dakota and Vermont.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

CommonBond not only offers low rates but is also making a social impact along the way. Consider checking out everything that CommonBond has to offer in term of student loan refinancing.

4. LendKey

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LendKey : Variable Rates from 2.68% and Fixed Rates from 5.10% (with AutoPay)

LendKey works with community banks and credit unions across the country. Although you apply with LendKey, your loan will be with a community bank. Over the past year, LendKey has become increasingly competitive on pricing, and frequently has a better rate than some of the more famous marketplace lenders.

Pros Pros

  • Opportunity to work with local banks and credit unions: LendKey is a platform of community banks and credit unions, which are known for providing a more personalized customer experience and competitive interest rates.
  • Offers interest-only payment repayment: Many of the lenders on LendKey offer the option to make interest-only payments for the first four years of repayment.

Cons Cons

  • Rates can vary depending on where you live: The rate that is advertised on LendKey is the lowest possible rate among all of its lenders, and some of these lenders are only available to residents of specific areas. So even if you have an excellent credit report, there is still a possibility that you will not receive the lowest rate, depending on geographic location.
  • No Parent PLUS refinancing available: Unlike several of the other student loan refinancing companies, borrowers do not have the ability to refinance Parent PLUS loans with LendKey.
  • You lose certain protections if you refinance a federal loan: As when refinancing federal loans with any private lender, you will give up your federal protections if you refinance your federal loan to a private one.

Bottom line

Bottom line

LendKey is a good option to keep in mind if you are looking for an alternative to big bank lending. If you prefer working with a credit union or community bank, LendKey may be the route to uncovering your best offer.

5. Laurel Road Bank

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Laurel Road Bank : Variable Rates from 3.23% and Fixed Rates from 3.50% (with AutoPay)

Laurel Road Bank offers a highly competitive product when it comes to student loan refinancing.

Pros Pros

  • Forgiveness in the case of death or disability: They may forgive the total student loan amount owed if the borrower dies before paying off their debt. In the case that the borrower suffers a permanent disability that results in a significant reduction to their income,Laurel Road Bank may forgive some, if not all of the amount owed.
  • Offers good perks for Residents and Fellows: Laurel Road Bank allows medical and dental students to pay only $100 per month throughout their residency or fellowship and up to six months after training. It is important for borrowers to keep in mind that the interest that accrues during this time will be added on to the total loan balance.

Cons Cons

  • Higher late fees: While many lenders charge late fees,Laurel Road Bank’s late fee can be slightly steeper than most at 5% or $28 (whichever is less) for a payment that is over 15 days late.
  • You lose certain protections if you refinance a federal loan: While not specific to Laurel Road Bank, it is important to keep in mind that you will give up certain protections when refinancing a federal loan with any private lender.

Bottom line

Bottom line

As a lender,Laurel Road Bank prides itself on offering personalized service while leveraging technology to make the student loan refinancing process a quick and simple one. Consider checking out their low-rate student loan refinancing product, which is offered in all 50 states.

6. Citizens Bank

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Citizens Bank (RI) : Variable Rates from 3.00% and Fixed Rates from 3.90% (with AutoPay)

Citizens Bank offers student loan refinancing for both private and federal loans through its Education Refinance Loan.

Pros Pros

No degree is required to refinance: If you are a borrower who did not graduate, with Citizens Bank, you are still eligible to refinance the loans that you accumulated over the period you did attend. In order to do so, borrowers much no longer be enrolled in school.

Loyalty discount: Citizens Bank offers a 0.25% discount if you already have an account with Citizens.

Cons Cons

Cannot transfer Parent PLUS loans to Child: If you are looking to refinance your Parent PLUS loan into your child’s name, this cannot be done through Citizens Bank.

You lose certain protections if you refinance a federal loan: Any time that you refinance a federal loan to a private loan, you will give up the protections, forgiveness programs and repayment plans that come with the federal loan.

Bottom line

Bottom line

The Education Refinance Loan offered by Citizens Bank is a good one to consider, especially if you are looking to stick with a traditional banking option. Consider looking into the competitive rates that Citizens Bank has to offer.

7. Discover

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Discover Student Loans : Variable Rates from 4.99% and Fixed Rates from 5.74% (with AutoPay)

Discover, with an array of competitive financial products, offers student loan refinancing for both private and federal loans through their private consolidation loan product.

Pros Pros

  • In-house loan servicing: When refinancing with Discover, they service their loans in-house versus using a third-party servicer.
  • Offer a variety of deferment options: Discover offers four different deferment options for borrowers. If you decide to go back to school, you may be eligible for in-school deferment as long as you are enrolled for at least half-time. In addition to in-school deferment, Discover offers deferment to borrowers on active military duty (up to 3 years), in eligible public service careers (up to 3 years) and those in a health professions residency program (up to 5 years).

Cons Cons

  • Performs a hard credit pull: While most lenders do a soft credit check, Discover does perform a hard pull on your credit.
  • No Parent PLUS refinancing available: Discover does not offer borrowers the option of refinancing their Parent PLUS loans.
  • You lose certain protections if you refinance a federal loan: Be careful when deciding to refinance your federal student loans because when doing so, you will lose access federal protections, forgiveness programs and repayment plans.

Bottom line

Bottom line

If you’re looking for a well-established bank to refinance your student loans, Discover may be the way to go. Just keep in mind that if you apply for a student loan refinance with Discover, they will do a hard pull on your credit.

 

Additional Student Loan Refinance Companies

In addition to the Top 7, there are many more lenders offering to refinance student loans. Below is a listing of all providers we have found so far. This list includes credit unions that may have limited membership. We will continue to update this list as we find more lenders:

Traditional Banks

  • First Republic Eagle Gold. The interest rates are great, but this option is not for everyone. Fixed rates range from 1.95% – 4.45% APR. You need to visit a branch and open a checking account (which has a $3,500 minimum balance to avoid fees). Branches are located in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland (Oregon), Boston, Palm Beach (Florida), Greenwich or New York City. Loans must be $60,000 – $300,000. First Republic wants to recruit their future high net worth clients with this product.
  • Wells Fargo: As a traditional lender, Wells Fargo will look at credit score and debt burden. They offer both fixed and variable loans, with variable rates starting at 4.74% and fixed rates starting at 5.24%. You would likely get much lower interest rates from some of the new Silicon Valley lenders or the credit unions.

Credit Unions

  • Alliant Credit Union: Anyone can join this credit union. Interest rates start as low as 3.75% APR. You can borrow up to $100,000 for up to 25 years.
  • Eastman Credit Union: Credit union membership is restricted (see eligibility here). Fixed rates start at 6.50% and go up to 8% APR.
  • Navy Federal Credit Union: This credit union offers limited membership. For men and women who serve (or have served), the credit union can offer excellent rates and specialized underwriting. Variable interest rates start at 4.07% and fixed rates start at 4.70%.
  • Thrivent: Partnered with Thrivent Federal Credit Union, Thrivent Student Loan Resources offers variable rates starting at 4.13% APR and fixed rates starting at 3.99% APR. It is important to note that in order to qualify for refinancing through Thrivent, you must be a member of the Thrivent Federal Credit Union. If not already a member, borrowers can apply for membership during the student refinance application process.
  • UW Credit Union: This credit union has limited membership (you can find out who can join here, but you had better be in Wisconsin). You can borrow from $5,000 to $150,000 and rates start as low as 4.29% (variable) and 3.99% APR (fixed).

Online Lending Institutions

  • Education Loan Finance:This is a student loan refinancing option that is offered through SouthEast Bank. They have competitive rates with variable rates ranging from 2.80% – 6.01% APR and fixed rates ranging from 3.39% – 6.69% APR.
  • EdVest: This company is the non-profit student loan program of the state of New Hampshire which has become available more broadly. Rates are very competitive, ranging from 4.53% – 7.20% (fixed) and 4.58% – 7.25% APR (variable).
  • IHelp : This service will find a community bank. Unfortunately, these community banks don’t have the best interest rates. Fixed rates range from 4.00% to 8.00% APR (for loans up to 15 years). If you want to get a loan from a community bank or credit union, we recommend trying LendKey instead.
  • Purefy: Purefy lenders offer variable rates ranging from 2.82%-8.42% APR and fixed interest rates ranging from 3.75% – 9.66% APR. You can borrow up to $150,000 for up to 15 years. Just answer a few questions on their site, and you can get an indication of the rate.
  • RISLA: Just like New Hampshire, the state of Rhode Island wants to help you save. You can get fixed rates starting as low as 3.49%. And you do not need to have lived or studied in Rhode Island to benefit.

Is it worth it to refinance student loans?

If you are in financial difficulty and can’t afford your monthly payments, a refinance is not the solution. Instead, you should look at options to avoid a default on student loan debt.

This is particularly important if you have Federal loans.

Don’t refinance Federal loans unless you are very comfortable with your ability to repay. Think hard about the chances you won’t be able to make payments for a few months. Once you refinance student loans, you may lose flexible Federal payment options that can help you if you genuinely can’t afford the payments you have today. Check the Federal loan repayment estimator to make sure you see all the Federal options you have right now.

If you can afford your monthly payment, but you have been a sloppy payer, then you will likely need to demonstrate responsibility before applying for a refinance.

But, if you can afford your current monthly payment and have been responsible with those payments, then a refinance could be possible and help you pay the debt off sooner.

Like any form of debt, your goal with a student loan should be to pay as low an interest rate as possible. Other than a mortgage, you will likely never have a debt as large as your student loan.

If you are able to reduce the interest rate by refinancing, then you should consider the transaction. However, make sure you include the following in any decision:

Is there an origination fee?

Many lenders have no fee, which is great news. If there is an origination fee, you need to make sure that it is worth paying. If you plan on paying off your loan very quickly, then you may not want to pay a fee. But, if you are going to be paying your loan for a long time, a fee may be worth paying.

Is the interest rate fixed or variable?

Variable interest rates will almost always be lower than fixed interest rates. But there is a reason: you end up taking all of the interest rate risk. We are currently at all-time low interest rates. So, we know that interest rates will go up, we just don’t know when.

This is a judgment call. Just remember, when rates go up, so do your payments. And, in a higher rate environment, you will not be able to refinance your student loans to a better option (because all rates will be going up).

We typically recommend fixing the rate as much as possible, unless you know that you can pay off your debt during a short time period. If you think it will take you 20 years to pay off your loan, you don’t want to bet on the next 20 years of interest rates. But, if you think you will pay it off in five years, you may want to take the bet. Some providers with variable rates will cap them, which can help temper some of the risk.

You can also compare all of these loan options in one chart with our comparison tool. It lists the rates, loan amounts, and kinds of loans each lender is willing to refinance. You can also email us with any questions at info@magnifymoney.com.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Pay Down My Debt

A Procrastinator’s Guide to Managing Your Finances

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Many of us fall victim to procrastination from time to time. And when it comes to managing your finances, avoiding or delaying tasks can get expensive very quickly.

“Our lives are busy, and sometimes we don’t want to deal with it,” says Gerri Detweiler, education director at the business credit management website Nav and author of “Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights.

In fact, Detweiler remembers the price she paid the year she pushed off renewing her business filings with the state.

“I didn’t get it done right away and paid enormously for it,” she said.

No matter the reason behind your procrastination, it can lead to a financial mess unless you move it to the forefront of your to-do list. Know that it is possible to transform into a doer – even if you’re a habitual procrastinator – by adopting the small changes below to achieve big results down the line.

1. Automate as much as possible

If you’re prone to procrastination, keeping on top of payments can feel overwhelming, especially if you have multiple lenders you need to pay every month. Consider automating your payments so you can avoid late fees and charges. Detweiler advises setting up text or email alerts so you know when payments are due and if there are any changes to the minimum payment amount. You can set up automatic payments with either the lender or through your bank’s bill pay tool; all you have to do is just make sure you have enough money in your account to cover what you owe.

2. Consolidate debt so you have fewer bills to keep track of

The average person has 3.06 bank cards and 2.5 retail cards, according to Experian’s 2018 State of Credit Report. Detweiler advises keeping two credit cards active at any given time: one with a lower interest rate to use for bigger purchases where you can revolve a balance, and a second credit card that is used for everything else, including earning rewards, that you pay off in full at the end of month. Then, put the rest of your cards in a drawer once they’re paid off and use them only occasionally to keep the accounts from being closed by the issuer.

If you have multiple high-interest credit card balances, you may be able to qualify for a balance transfer card offering 0% interest for a specific period of time. While most balance transfer deals charge a 3% balance transfer fee, which is added to the amount you transfer, it may make financial sense to move multiple balances to one card with one payment. Then, devise a repayment plan to knock down that balance as much as possible during the no-interest period as your payments will all be directed toward the principal until the 0% offer has expired.

Another option is to consolidate multiple card balances or other debts with a debt consolidation loan. Depending on how good your credit score is, you may be able to find a lender offering an interest rate lower than what you’re paying on your credit cards. The beauty of a debt consolidation loan is that you can use it to pay off your debts and then have one fixed payment over a specific period of time, generally two to five years. Of course, this will only help if you have the discipline to refrain from adding new debts or purchases to your now-cleared credit cards.

If you’re really struggling and over your head with your finances, consider talking to a credit counselor that can put you on a debt management plan.

3. Turn to technology to help change behavior

If you’re a procrastinator, relying on your willpower can be challenging. Thankfully, technology can help with that. Consider turning to apps or websites to help change any unhealthy behaviors and transform any bad habits.

For instance, you could download a robo-saving app, such as Digit, or enroll in a savings program like Bank of America’s Keep the Change, that help make saving as painless and out-of-mind as possible. Remember that small financial goals (like saving $5 per day versus $150 per month) will seem more achievable and can help lead to big improvements.

Other apps or websites aggregate information about multiple accounts, so you can see what’s due and what’s outstanding on a weekly or monthly basis, can also come in handy. Detweiler suggests Mint, Credit Karma, or the EveryDollar budget app. She also suggests setting reminders so you can remember to log in regularly. When you see the progress you’ve made in a chart or graph, it acts like a reward that is sent to your brain, which is key to long-lasting behavior changes, as journalist Charles Duhigg noted in his book “The Power of Habit.”

Whether your procrastination is the result of being really bad at time management or overly demanding standards that result in unhealthy levels of perfectionism, it helps to be aware of what’s causing any counterproductive, irrational behavior so you can determine how to do better.

For instance, if you’re really bad at estimating how long it’ll take you to finish a task, then make a habit of starting earlier than you normally would. Or, if your overly demanding standards stop you from getting started, then remind yourself before you start the task that “done” is better than perfect and think back to times that procrastination has proven harmful to you.

Changing behaviors, like managing your time better or reducing any anxiety you feel when tackling big tasks (like paying multiple lenders every month), can be challenging, but not impossible. Breaking things down into small, simpler tasks and using technology to help you as much as possible can set you on a fresh path to break unhealthy habits and lead to big improvements on your finances.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Vivian Giang
Vivian Giang |

Vivian Giang is a writer at MagnifyMoney. You can email Vivian here

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