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Student Loans and Bankruptcy
Posted on February 29, 2012 by admin in Chapter 7, Mankato Bankruptcy Attorney, Minnesota Bankruptcy Law, Student LoanOne of the reaso
ns people file chapter 7 bankruptcy is to discharge (get rid of) debt. With the cost of schooling on the rise one of the largest debts individuals have is student loans. So can you discharge student loan debt? The short answer is no, the long answer is very, very rarely.
How are student loans discharged on the rare occasion? The burden is on the debtor to prove that it would be an undue hardship on himself or herself and their family to be forced to pay the student loans. Although it is not uncommon to have student loans in the $100,000 range Congress intended that discharge for undue hardship be reserved for the “rare debtor.” So while you may claim undue hardship based on any number of contributing factors, it is up to the bankruptcy court to determine if your situation meets the legal standard set by Congress. To make it more difficult, if you are young and can work rarely will a Judge grant you a discharge of those pesky student loans. For most student loan borrowers, the legal hurdles are significant if not impossible to meet.
The protection granted to ensure collection on government funded student loan debt was also granted to private companies sweeping change of bankruptcy law in 2005. Recent congressional action may attempt to end this protection. In an effort to tackle this growing issue in 2011, the Senate introduced the Fairness for Struggling Studens Act of 2011. The House of Representatives introduced a related bill. Both bills would restore the ability to discharge commercial student loans in bankruptcy proceedings, reversing a 2005 change to the law for borrowers who find themselves unable to make payments on their loans.
The amount of student loans Americans took out last year hit a record $100 billion, which pushed that debt higher than credit card debt, a new report showed. Until the law changes, relief for large student loans does not look likely for most individuals.
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But I heard that you can just defer them every two years so its like you really don’t have to pay them? Is that true? thanks.
You are able to defer student loans for a short period of time, if you qualify. After the deferment the loan payments will restart.
You will probably not be able to qalfiuy for private student loans, but you cannot be denied Federal student loans on account of your bankruptcy. You CAN be declined for Federal student loans if you are currently in default on other student loans you already have (but it sounds like you are not).You will need the advance permission of the Ch 13 trustee before incurring new debt (including student loans). Most Ch 13 trustees will approve reasonable and necessary student loan borrowing.Talk to your bankruptcy attorney about the details of getting permission from the trustee before taking out the new loan(s).
After 2005 legislation, all sunedtt loans are exempt from discharge in bankruptcy. You may be able to avoid this with private loans if you can show that your loans are not really “educational loans” as defined by the Bankruptcy Code. For example, the standard does not apply to payments for tuition or room and board if you did not receive an extension of credit. Also, the higher standard applies only if you went to an “eligible educational institution.” That means an institution that is eligible to participate in one of the government sunedtt financial assistance programs. Most, but not all, schools fit this category. You should consult a lawyer for more information about whether your loans meet these definitions.
[...] there are many people with student loan obligations, and because people filing for bankruptcy already have significant financial problems, [...]