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NinjaGimp

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Affect of Student Loan Cancellation
I'm 52 and two years ago I had to retire from my State job of over 20+ years on a reduced pension for medical disability. I do not intend to apply for Social Security Disability.
My student loan debt balance is approx $52k, credit card debt approx $22k, savings approx $10k, annual annuity approx $42k and I;m looking into finding out if I am able to get approved for cancellation of the balance of of my student loan -- none of my debt is in arrears and I have very good credit.
If I am approved on getting the balance of my student loan debt cancelled I want to know what kind of affect this will have on my overall credit worthiness and the ability to get future loans, credit cards, etc.
Does anyone know how this will affect me? Whether or not it is positive or negative, I also wonder if I should pursue this? My monthly payment of my student loan eats up approximately 17% of my monthly annuity my and monthly credit card payments 56% of my monthly annuity leaving me with only about 27% of income for everything else. If the student loan debt is gone, I'll have about 44% of my income available for everything else.
I know that if the loan is cancelled it will be reported to IRS as income (via 1099-c) and I will be liable for income taxes on the amount, but I should be able to claim insolvency and not own any taxes on it. Has anyone been in a similar situation or know how this will affect me?

Thank you

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If you can qualify for Total Permanent disability, you may be able to get your student loans cancelled on that basis.  I am disabled, and finally got the loans cancelled on that basis.  Since my only income is VA disability compensation, which is exempt, and so I have not had to pay taxes on the cancellation.

Your priorities on your pension income should be (1) Housing, including insurance, utilities and property taxes: (2) Food (3) transportation (gas, insurance, etc), and all credit accounts bring up the rear.  I know this for sure since I once filed under Chapter 13 and this was the priority the court dictated.  Right now, you absolutely need to get that credit card debt paid off ASAP.  That is too high a balance.  Since the interest on savings is far lower than what you are paying in interest on the credit cards, apply that money to reducing the credit card debt, stop using the cards for a while and get those accounts paid in full.  A regular income of any sort does not qualify you as insolvent unless that income is lower than the poverty level.  And do think again about applying for Social Security Disability.  Since you had to quit working on that basis, you should get the Social Security benefits.

Reply by
art1959

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jwsister, did you have to file taxes becuase of it? I had to becuase once cancelled its considered income! I paid over $9,000 toward mine and $2400 in interest but my assets were less than my debt so I didn't have to pay taxes. I', fighting with transunion to take it off my report under derogatory remarks and equifax and experian have it as paid no balance yet transunion is making it hard for me to bring up my score. i'm ready to hire a attorney to force them.

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You can find out quickly and easily if you can get the student loans forgiven by calling Crest Student Loan Consolidation at 469-619-0644, or visit their website at www.crestslc.com.  It will definitely help your credit scores to get them removed or consolidated if not forgiven.  Hopefully you can avoid bankruptcy, as that becomes it's own nightmare that will take you many years to recover from.  Best of luck!

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Thanks for all the good advice. From my research (talking to a couple of CPA's) insolvency should be easy to claim b/c the student loan debt is includeable and I'm not working -- the annuity does not count towards the poverty level requirement, only employment earnings. 

I agree on paying off the credit cards, I've been doing this for the past 14 years when they were double the amount (and I had double the income).  I was able to get all of them under 10% interest with several at or below 5%, so that's been helping alot to reduce the debt.  But now I have to think of my future.  I never imagined I would be unable to work at my age. 

The irony of Social Security Disability is that since I had a State job, I will only get up the the difference of my working salary and my annuity, and I'd have to apply for Medicare which currently does not cover as much as my insurance with the state.

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