There are often times confusion around the topics of Bankruptcy and Student Loans. We hope this post can help clear up a few of those questions you have pertaining to Bankruptcy and Student Loans.
Now, most people either file Chapter 7 or Chapter 13 bankruptcy, and depending on which you have filed your student loan situation may differ:
Student Loans and Chapter 7 Bankruptcy:
“Chapter 7 is liquidation bankruptcy, or the type of bankruptcy that results in a discharge of one’s debts. Student loans cannot be included in a Chapter 7 bankruptcy, unless the filer can prove that making student loan payments would cause “undue hardship”on him or his family.
To be considered for the hardship exemption for repayment, you must file a separate motion with the bankruptcy court. You must then explain your hardship to the judge. In general, hardship may be granted only if:
You can prove that making your student loan payments would cause you to fall below a minimum standard of living.
You can show that your financial difficulties will be long-term with little hope of improvement.
You have made an effort in the past to repay your student loans. In actuality, this exemption hardly ever is granted unless you have a physical condition that does not enable you to work, and if there is no chance that you will be able to find sufficient employment in the future.”
Student Loans and Chapter 13 Bankruptcy:
“Chapter 13 is reorganization bankruptcy, or the type of bankruptcy that results in a reorganization of ones debts and a repayment plan (usually 3 to 5 years in length) under the discretion of the bankruptcy court. Generally, any debts that remain unpaid after the reorganization are discharged.
Both federal and private student loans can be included in the reorganization. You might be able to make a slight difference in your debt, but this will depend on a wide variety of factors. In the end, you still will owe most, if not all, of your student loans.
While bankruptcy most likely will not help to relieve you of your liability for student debt, it still can be a helpful move for the borrower whose debt is made up mostly of other types of debt. The ability to discharge part or all of other debts will free up more money for you to be able to pay off your student loans.
Consequently, if your student loans are the main part of your debt load, then it almost certainly is not worth it for you to file bankruptcy. Yet, you have to take some type of action. Since the passing of the Higher Education Technical Amendments of 1991, you no longer even have the protection of a statute of limitations on your student loan debt.” - debthelp.com
For more information on bankruptcy and student loans click here.
Tags: applying student loans college, bankruptcy, credit, Private student loans
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