Bankruptcy and Student Loans

Bankruptcy and student loans do not work well together. Bankruptcy can only eliminate student loans if the debtor can prove substantial hardship or disability. Bankruptcy can get rid of other debts that compete for the debtor’s money.  Some courts will allow a debtor to classify a student loan separately from other debts and pay a greater percentage than to other unsecured debt. This would happen in Chapter 13 cases.

A student loan is unenforceable if the school closed before the course was completed or due to wrongdoing on the part of the school. Substantial hardship regarding bankruptcy and student loans means that the only way the student loan will be discharged is by proving that the repayment of the loan will create an absolute undue hardship on the debtor and his or her family. The debtor will need to show that the hardship is highly unlikely to improve over time. There are courts that will allow the judge to order the debtor to repay a portion then discharge the balance of the loan.

One thing a debtor can do in regards to bankruptcy and student loans are the state or condition of the lenders records. On some occasions, the loan has been transferred several times and it is not clear as the exact amount owed and whether the additional charges are done in accordance with the law. This however, does not happen often.

Federal regulations state the amount of a debtor’s wages that can be garnished is limited to ten percent of the debtors take home pay. Lenders do have the right to take tax refunds and apply them to the outstanding balance of the student loan.

Bankruptcy and student loans do not have to be the final answer. Student loans can be consolidated with other debts and a manageable repayment plan can be worked out for the debtor/borrower. If the debtor finds that, they are having trouble paying off the student loan then contact the vendor. Arrangements can be made where perhaps only the interest is paid back until the debtor can manage more. Lenders would prefer that you contact them if there is a problem. It gives them the feeling that you intend to honor your debt.

If you have significant debt caused by student loans then you should consult with a qualified bankruptcy lawyer. These specialized attorneys are trained in the bankruptcy laws of your area and should be able to provide answers to all your questions. Bankruptcy and student loans can be overcome.

Student loans have no statue of limitations, so they never really go away. To avoid getting caught up in bankruptcy and student loans, seek out methods to supplement your income or try to get a higher paying job.

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