Most people take on student loans with the highest of hopes. Even if you don't find the job you anticipated, repayment obligations usually begin six to nine months after you leave school. If you can't find work, the payments might be more than you can handle. Filing for bankruptcy might not make the debt go away.
Student Loans in Bankruptcy
Student loans are usually non-dischargeable in bankruptcy. This means that after your bankruptcy erases all your other debts, you still have to pay student loan debt. If you fall nine months behind, your lender can call the whole loan due at once. Filing bankruptcy can be an option in only one circumstance.
Discharge of Student Loans in Bankruptcy
The law lets you eliminate your student loans if paying them creates an "undue hardship" for you and your family. You must prove to the bankruptcy court that you're only earning enough to pay for a "minimal standard of living." This usually means you can’t afford cable, Internet or a cell phone - even without paying your student loans. You also have to prove that your finances aren't likely to get better. It helps if you were able to make at least a few payments. This shows the court that you tried.
File Adversary Proceeding to Discharge Student Loans
A hardship discharge won't happen automatically when you file for bankruptcy. You - or your attorney - must file an extra petition, called an adversary proceeding. The petition asks the court to make an exception in your case from the usual rule that student loans can't be erased.
Chapter 13 Bankruptcy and Student Loans
When you file for Chapter 13 bankruptcy instead of Chapter 7, you agree to pay off your debts over three to five years. The court supervises your payments, and your student loan lenders can't demand the whole loan due at once. Each month, you give your bankruptcy trustee all your extra income, and the trustee divides that money among all your creditors. This can make your overall monthly payments go down.
Even though you'll still have your student loan payments after your Chapter 13 plan ends, your bankruptcy will erase your other debts. You'll only have to deal with your student loan payments, if they haven't been paid off by that time.
A Personal Bankruptcy Lawyer Can Help
The law surrounding student loans and personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.
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