The following information is provided solely for informational purposes It is not meant to provide legally binding advice.
Students’ loans have been prominent in recent news due to President Biden’s announcement of offering $10,000-$20,000 of students loan repayment. However, you might be wondering whether you could make bankruptcy an option to get rid of the more significant student debt. This article will help you understand the basics about bankruptcy and student loans.
How Bankruptcy Works
If a person files in bankruptcy, they usually make a claim in Chapter 7 or 13. Both options are used to eliminate certain types of debt.
Chapter 7 bankruptcy
Also known as liquidation bankruptcy Chapter 7 can erase eligible unsecure debts such as medical or credit card debt. However, a trustee appointed by the court may still be able to take your property that is not exempt (primary property is excluded) and then sell it to pay your creditors using the funds.
Chapter 13 bankruptcy
Also known as a wage earner’s plan, or reorganization bankruptcy Chapter 13 is available to those with enough resources or earnings to make repayments for their creditors. The court will not sell your home, but you’ll be offered an alternative repayment plan (often 3 to 5 years plans) to pay your creditors. The remaining debt that you are eligible to repay is paid off at the conclusion of the terms of your payment plan.
The process of filing bankruptcy can be long and take a while and the particular documents needed will differ in accordance with your particular circumstances and the type of bankruptcy you’re filing.
What’s important to remember is that certain types of debt aren’t usually dismissed, like student loans and children’s support, Alimony as well as certain tax obligations. However, there are exceptions.
Can Student Loans Ever Be Discharged?
In the end the simplest terms, yes. There’s a misconception that student loans cannot be discharged under bankruptcy, however in reality some cases, they are. But, they are more difficult to get rid of than other types of debt. So, although it’s not impossible however, you must understand what’s at stake.
The most important thing is that you be able to demonstrate that the repayment of those student loans would result in “undue” difficulties. In normal bankruptcy proceedings, you present a case the reason you want the debts to be eliminated. However, if you’re looking to incorporate student loan debt as part of your debts that are to be discharged, then you’ll have to be a part of an adversary bankruptcy proceeding, which is in essence a court proceeding within your bankruptcy process. This can make things more difficult.
As per studentaid.gov, you’ll have to show these things:
- If you’re required to repay the loan, you’ll not be able maintain the minimum level of living.
- The evidence suggests that this issue will persist for a large portion of the loan time.
- You put in good faith to pay back the loan prior to filing for bankruptcy.
If you’re convinced that continuing to pay for your student loans could create hardship for you There are a variety of things that could occur. Your loan may be paid off in full, they may be partially discharged, or you may be forced to pay them back in full, with better terms such as reduced interest.
It is possible to be more successful in applying for bankruptcy with personal education loan in comparison to federal loans. This is since federal student loans are usually qualified to be eligible for the income driven repayment plan (IDR) which can lower your payments to as low as $0 per month with the balance being forgiven after a specific amount of years (usually 20 or 25). Private student loans aren’t eligible to the IDR plans, which means they may be considered bankruptcy.
However the situation, the court will want you to explore all options before agreeing to an order of discharge of any type.
It’s also important to note that there isn’t a thing in the sense of “student student loan bankruptcy” as a separate procedure. If you’re trying to declare bankruptcy based on solelystudent loans (with no other debts) You’re highly likely to fail.
Learn about your repayment options through Student Loans
If you’re struggling with federal student loans that are weighing you down, ensure you’ve considered all of your options for repayment plans. It could be that you could benefit from an IDR program (or public service loan forgiveness permits you to make payments that are affordable without needing to file for bankruptcy.
If you’re experiencing temporary financial difficulties If you are experiencing financial hardship, consider the possibility of deferring or forbearance options for federal loan to avoid delinquency. Be aware that your federal student loan payments are currently suspended due to the Covid-19 virus, and they will not resume until January 2023..
If you decide to file for bankruptcy, be sure you consult with a reputable lawyer. You are able to file it yourself however, it’s a complex procedure, especially if you’re looking to incorporate student loan debt.
The negatives of filing bankruptcy on student loans
The biggest negative is that filing bankruptcy is expensive. The costs for attorneys and court filing fees can add up. The court could consider your capacity to pay for bankruptcy attorneys as evidence of your ability to pay off your debts. You must ensure that you’ve exhausted every other option before making the decision to file bankruptcy.
Keep in mind that, depending on the kind of bankruptcy you choose to file, a trustee appointed by the court could be charged with selling the property you don’t need to pay your creditors. It is up to you to determine whether the loss of that asset is worthwhile for you.
