Discharge Student Loan In Bankruptcy
If you’re in the process of filing for bankruptcy, you may be wondering if your student loans can be discharged. There are two types of student loans: private and federal. Private student loans are issued by a bank or other lender and do not have any special benefits like income-driven repayment plans or forgiveness programs. Federal student loans are issued by the government through either the federal Direct Loan Program or FFEL program. A bankruptcy discharge only applies to private student loans; however, there are several ways that you might be able to successfully discharge your federal student loan debt in bankruptcy court.
Bankruptcy only discharges private student loans.
You cannot discharge your student loans in bankruptcy if they are private student loans, nor can you discharge any portion of the loan that was used for non-educational purposes.
Private student loans are not dischargeable in bankruptcy, because they were made to help fund an investment (your education) rather than a debt. However, many people take out both types of loans to pay for their educations and other expenses. If you took out both public and private student loans, it’s important to know whether or not your entire balance is eligible for discharge in Chapter 7 or Chapter 13 bankruptcy before filing your case with the court.
The vast majority of people who file for bankruptcy do so under Chapter 7; when a person files under this chapter, most debts are forgiven once all assets have been liquidated through sale or auction. But there’s one exception: if students can prove undue hardship during the time leading up to filing bankruptcy—which is typically about three years after leaving school—they might be able to get all remaining balances forgiven as well (if certain requirements are met). This is often difficult because courts require borrowers looking for relief from their creditors based on undue hardship must meet specific criteria set forth by Congress that vary depending on several factors such as income level and ability/inability remain current on payments without suffering undue financial hardship themselves.”
You can try to show undue hardship, but that is extremely difficult to do.
The bankruptcy court will consider your income, expenses and monthly payments. The court will also look at your ability to pay your student loans. In addition, the courts will look at your ability to get a job and whether that job can help you pay off debts in a reasonable amount of time.
Often times individuals with medical conditions are able to discharge their debt on the basis of undue hardship because they can’t work due to their condition or illness. But even if you do not have a medical condition it will be difficult for an individual with no income or assets other than their student loans to find an attorney who is willing to file a Chapter 7 bankruptcy case on behalf of someone without any income or assets (other than student loan debt).
Student loan discharge in bankruptcy is extremely rare but it is not impossible.
A student loan discharge in bankruptcy is extremely rare because of the high bar that you need to meet. In order to get a discharge, you must be able to show undue hardship. Undue hardship requires you to show the court that paying off your student loans will cause an extreme burden on your finances and daily life.
In addition, you must make a good faith effort at paying back your student loan before filing for bankruptcy protection—if not, it could delay or even prevent your discharge altogether. Finally, it’s important that if you do get approved for a student loan discharge in Bankruptcy Court (which is also very rare), that it doesn’t mean that all of your past due payments will be forgiven; only some of them may qualify as discharged debts depending on their amount and what type they are (for example: federal loans vs private ones).
You can discharge your student loan in bankruptcy but it’s a lengthy process.
Bankruptcy is a lengthy and difficult process. In order to get your student loans discharged in bankruptcy, you must prove undue hardship. You will have to file a separate bankruptcy petition and pay a filing fee. If you are granted an undue hardship discharge, then you can expect it to be approved within four months of your filing date.
If your case is approved for undue hardship, then you will have another opportunity to request discharge of any remaining student loan balance in chapter 7 relief within one year from the date on which the original undue hardship determination was made (or longer if necessary).
I hope this article was helpful and cleared up any confusion about whether or not you can discharge your student loan in bankruptcy. I understand that it’s a confusing topic, but it’s actually one of the most common questions we get at Student Loan Planner. We have helped hundreds of people with their student loans, so if you’re ready to talk to someone who can help reduce or eliminate your debt contact us today!