Many people who have a difficult time paying their bills have discovered that bankruptcy is an invaluable option. When financial indebtedness involves student loans, however, many people are deterred because they have heard that student loans are not capable of being discharged in bankruptcy. While it is true that there are steep requirements for discharging student loan debt through bankruptcy, some people have managed to do it. For this reason, bankruptcy is worth considering even if you have significant student loan debt, provided that you have the assistance of an experienced bankruptcy attorney.
The Hardship Requirement
In 2005, Congress enacted the Bankruptcy Abuse Protection and Consumer Protection Act, which made federal and student loans more challenging to discharge in bankruptcy. In most situations, a person is unable to discharge debt if the borrower is unable to establish that the loans led to undue hardship. To establish that an undue hardship exist, debtors must establish that:
- They are unable to maintain a minimal standard of living for themselves as well as their dependents due to their current income and expenses
- Their financial situation is not likely to change during the term of the loan
- They have made good faith efforts to repay their loans
This hardship requirement only applies to federal student loans, student loans funded by a non-profit, and qualified educational loans. The debtor must have attended a Title IV certified school, borrowed only as much as the school’s cost of attendance, and have been a qualified student, which often means having at least a half-time course load.
Income Driven Repayment Plans
While some student loans, including Perkins loans, are federal loans, other loans are non-federal and made through private lenders. There is an option of income-driven repayment for federal student loans, which involves borrowers making loan payments based on their monthly income and family size. Often, after faithfully paying income-driven repayment plans for a period of several decades, a person is able to discharge the remaining loan balance. Because non-private student loans do not offer income-driven repayment plans, individuals are not able to lower monthly payments for an extended period, which means that it is often easier to show that these loans are creating an undue hardship.
Prepare a Budget
If you decide to pursue bankruptcy options for student loans, it is critical to prepare a budget that details your expenses as well as paying work. It is important that not just large loans, but also small ones will likely be analyzed by a bankruptcy court. Courts might also analyze if you looked for additional work and whether you will be able to afford student loan payments in the future. Fortunately, an experienced bankruptcy attorney can help prepare you for these situations.
Obtain the Services of a Knowledgeable Bankruptcy Lawyer
If you are interested in navigating the bankruptcy process, you should not hesitate to speak with a knowledgeable bankruptcy attorney. Resnick Law has helped many people navigate bankruptcy. We understand the complexities of bankruptcy law and will remain committed to obtaining the results you deserve. Contact our law office today and during a free consultation, we will discuss your various available options to obtain compensation.
(image courtesy of Nathan Dumlao)