Can I File for Bankruptcy on my Student Loans?
When making the choice to attend college, the last thing on a student’s mind might be whether he or she will be able to pay back student loan debts after graduation. But times are tough. A less-than-favorable economy and job market flooded with hundreds of thousands of new college graduates each year can mean those student loans will be difficult to pay back.
South Carolina bankruptcy attorneys know that college graduates across the United States are having more difficulty than ever making ends meet. Because of this, whether bankruptcy can be declared on student loan debt is a startlingly common question asked by countless college graduates and their parents every year.
Student loans considered ‘nondischargeable debts’
As any bankruptcy lawyer would tell you, the answer to this question may be more complicated than you may think. Student loans are considered “nondischargeable debts” and typically cannot be eliminated by filing Chapter 7 or Chapter 13 bankruptcy. In exceptionally rare cases – such as when a student suffers a disabling injury – he or she may be able to demonstrate that it would be an undue hardship to pay back student loans based upon current income and expenses, duration of repayment period and based upon previous attempts to pay back student loans in good faith.
For most students, the harsh reality is student loans will simply not go away until paid in full. However, options exist for students who are looking for short or long-term relief from student loan payments after graduating from college. While these options may not forgive a student from their obligation to pay back their loans, a bankruptcy lawyer might be able to present students with options designed to make their lives easier until able to pay back these oftentimes unrealistic loan payments.
Can Chapter 13 bankruptcy help manage student loans?
It is rare for student loans to be fully discharged in bankruptcy. However, bankruptcy may still prevent a number of viable options for students who face overwhelming debt. While Chapter 7 bankruptcy doesn’t free a student of their education-related debt, it may be used to wipe out other types of debt (such as credit card bills or medical bills resulting from an emergency). However, for many college graduates facing debt, filing Chapter 13 bankruptcy is a viable option that can preserve your credit and prevent years of financial hardship.
How can Chapter 13 bankruptcy help a college graduate looking to repay student loans? Students need to remember that filing for Chapter 13 bankruptcy does not wipe out their student debt. Instead, it gives indebted students breathing room by reducing or delaying monthly student loan payments throughout the duration of the bankruptcy. In addition, Chapter 13 bankruptcy automatically prohibits creditor, including loan lenders, from trying to collect debts. This way, college graduates have up to five years – the maximum duration of Chapter 13 bankruptcy – to increase their income and afford payments after bankruptcy.
Under Chapter 13 bankruptcy, it’s important to note that college students are only obligated to pay back what they can afford. If you have little or no disposable income, you may not have to pay anything toward your loan. If you can afford to pay a smaller percentage of your monthly payment, that option is available too. A bankruptcy lawyer can best evaluate what your best option is.