Can Filing Bankruptcy Get Rid of Student Loans?
In the past, you could get rid of most student loans by filing bankruptcy, but in 1998, the law changed, making it much more difficult to eliminate them in bankruptcy. Today, the only way to eliminate student loans is to get a hardship discharge.
What is a Harship Discharge?
To get a hardship discharge, you must be able to prove to the bankruptcy court that repaying student loans will impose an undue financial hardship on you and your family. The standard used to determine what constitutes an undue financial hardship varies from one jurisdiction to another. However, generally, to prove undue hardship, you must show:
- That you will be unable to maintain a minimum standard of living based on your current income and expenses if you are required to repay your student loans;
- That there are additional circumstances tending to indicate that your current financial situation is likely to persist for a significant portion of the repayment period; and
- That you have made a good faith effort to repay your student loans.
If you are successful in proving that repaying your student loans would create an undue financial hardship, they will be discharged. In some instances, the court will discharge a portion of the student loans, leaving you responsible for the balance.
Why File Bankruptcy if my Student Loans Will Not Be Discharged?
Even if you can’t get a hardship discharge, filing bankruptcy may still be a good option for you. If your student loan servicer is harassing you for payments you can’t afford, filing bankruptcy will temporarily stop those collection efforts.
As long as you are in bankruptcy, your student loan servicer cannot call you or write to you because the automatic stay prohibits all collection efforts by creditors. This will give you some breathing room to implement a plan to repay your student loans. Additionally, if you are able to eliminate other debts, such as credit cards and medical bills, by filing bankruptcy, you may find that you are in a better position to repay your student loans.
Can I Get New Student Loans?
If you have defaulted on your student loans, you will probably be unable to qualify for additional student loans until you bring the loans current. However, if you are not in default and you file bankruptcy, you can qualify for new student loans because the Bankruptcy Code makes it illegal for an applicant to be denied a student loan because he has filed bankruptcy.
At the Bankrutpcy Professionals we know how hard it is to deal with student loans when you are having financial difficulties. Even if you file bankruptcy, interest will continue to accrue. Moreover, if you have defaulted on the loan, they will add collection costs that can double what you owe, making it that much more difficult to repay. So, our bankruptcy attorneys are prepared to help you explore other options, including:
- Loan cancellation;
- Alternative repayment options; and
- Offset of federal benefits.
Loan Cancellation – Under certain circumstances, some student loans may be eligible for cancellation. These federal loans may be cancelled as a result of:
- School closure;
- False Certification;
- You become totally and permanently disabled; or
- You are entitled to an unpaid refund discharge.
Keep in mind that not all federal student loan programs allow for cancellation under all of the above circumstances. To find out what type of student loan you have and whether it qualifies for cancellation, contact the National Student Loan Data System at 1-800-4-FED-AID or 1-800-433-3243.
Alternative Repayment Options – There are several repayment options which may be available to you to make your student loan payments more affordable. These repayment options include:
- Loan consolidation;
- Income based repayment;
- Deferment; and
Offset of Federal Benefits – Federal law allows the government to offset defaulted student loans by seizing various federal benefits including:
- Social Security Retirement and Disability Benefits;
- Railroad Retirement Benefits; and
- Black Lung Part B Benefits.
There are limits on the benefits which can be seized. Additionally, you are entitled to notice and a hearing before an offset may occur. At the hearing you can challenge the offset or negotiate a repayment plan.
If you have questions about bankruptcy and student loans or about student loan cancellation, alternative repayment options, or offset of federal benefits, the bankruptcy attorney at the Bankruptcy Professinoals are available to speak with you 888-970-1090. We specialize in helping people find solutions to their financial problems and are committed to providing superior service to all of our clients.