Student Loan Hardship Cases And Bankruptcy

Student Loan Hardship Cases And Bankruptcy

A lot of college graduates are facing a similar debt crisis. In particular, what do you do if you have $80,000 in student loans and after a period of years are simply unable to pay them off? What many former students do is to file for Chapter 7 bankruptcy and try to have the debt wiped out

However, it is a good idea to question whether or not this is a winning strategy because bankruptcy laws have changed. It used to be that if a bankruptcy judge approved your filing for Chapter 7, that the majority of your debts, including student loans, would be liquidated. You would still be responsible for debts such as taxes, child support, and a few others. But, for the most part, you would be able to reset your financial life.

Things have changed quite a bit under the new bankruptcy law. Except in rare circumstances, student loans are usually no longer liquidated when you file. For most people, this makes filing for Chapter 7 much less advantageous than it was in the past.

Making your case in the bankruptcy court will take some doing. In essence, you will have to prove to the courts that if you are forced to repay your loan, it will cause undue hardships for you and your dependents. And you have to prove this by filing a separate court action as part of your bankruptcy case.

And the court standard that the bankruptcy judge will require you to meet, is not an easy one. As a general rule, most judges will not discharge your student loan unless you can make the case that you will never be able to repay the loan. In addition, to prove that you have been acting in good faith, you must show that you have exhausted all reasonable attempts to pay back the monies that you have owed.

There are very few federal guidelines as to what constitutes undue hardships. The issue of whether you qualify will, essentially, be determined by the bankruptcy court in the state where you have filed. As a result, what may be considered a hardship in one state, may not be considered a hardship in another state. To determine the probable outcome of a bankruptcy filing, its best to seek the expert advice of a bankruptcy attorney in the state in which you are filing.

Since the changes in the law have taken place, what will actually happen in the majority of cases is that you will be advised to file a Chapter 13 bankruptcy instead. This is what is typically referred to as a repayment plan. Under this plan, your student loan debts will not be liquidated.

There is at least one good thing about this form of bankruptcy, however. And that is that the terms under which you are currently paying them will most likely be modified. The effect of this will be to either change the amount of the loan that you will have to repay each month, to adjust the interest rate, or possibly both.

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