Can You File Bankruptcy On Student Loans?

Thousands of students from around the world are finding themselves struggling in these harsh financial times and are asking the question can you file bankruptcy on student loans?

College students pay a high price for their education. A four-year course at a top US institution can cost up to $50,000 for tuition alone. Whilst some students are fortunate enough to be able to meet these costs through the support of their parents, scholarships or bursaries, an increasing number of students are turning to borrowing in order to finance their education.

Student loans are now the norm.  And unfortunately so are students desperate to find a way to pay off these loans. But the question of student loan bankruptcy is not as straight forward as a bankruptcy that does not involve a student loan.

Most students hope that the well-paid careers their degrees unlock for them will mean that they will be able to pay their debts off easily – but with the graduate job market becoming increasingly competitive, many ex-college students are finding themselves stuck in entry-level jobs, struggling to earn enough to pay off their debts. According to a recent National Post-secondary Student Aid study, the average college student owes more than $23,000 at the end of their education.

Is There Such Thing As Student Loan Bankruptcy?

Essentially no, student loan bankruptcy per SE does not exist if you are looking at going down the personal bankruptcy, clear all debts, wipe the slate clean that personal chapter 7 bankruptcy affords.  It is very rare indeed for a judge to agree to include a students debts in this. However, as with everything else to do with bankruptcy there may be exceptions and if you feel you fit into that category it is well worth exploring these.  It could be just a simple phone call that you need to make to find out where you stand.  There is good free advice out there and available to you. Make use of it.

Can Student Loans Be Included In Chapter 7 Bankruptcy?

Many people who can no longer honor their loan agreements – and have exhausted all other options – decide to declare bankruptcy. This enables them to discharge their debts and start over again. Unfortunately for college graduates, student loan debts are nearly impossible to discharge in this way.

Before 2005, some privately funded student loans could be dealt with through a Chapter 7 bankruptcy. However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 changed all this. Now, the only way for college students to discharge education loans in this way is by claiming that the loan imposes “undue hardship” on them, their family or their dependents.

“Undue hardship” means that the debtor cannot afford to keep a basic standard of living whilst repaying their loans, and they must also be able to prove that their financial situation is unlikely to change in the future. Furthermore, proof must be given that the debtor has made an honest attempt to repay what they owe. However, unless the student is permanently disabled and cannot work, it is almost impossible to prove undue hardship. The student shouldn’t attempt to file for this unless he or she is sure that it would be successful; filing for undue hardship would mean paying for a separate trial.

Can Student Loans Be Included In Chapter 13 Bankruptcy

However, there are ways out for college graduates in debt. A Chapter 13 bankruptcy won’t wipe the money the student owes, but it will provide him or her with a payment plan to help them repay the loans over three to five years. The plan is court enforced, so the loans company must accept it (unlike other debt-management plans). A Chapter 13 bankruptcy may just make a small dent in the money the student owes, but at least it will buy the debtor more time to amend his or her current financial situation. It will also halt any debt-collecting action during the case. Of course, in order for this option to be feasible, the debtor must have a stable, disposable income with which to repay the debts. So you must have some sort of income before anyone will consider you for chapter 13 bankruptcy on your student loan.  These kind of arrangements is arranged properly can work very well for the student.

It is strongly advised that if you are thinking of going down this route that you get some advice from a qualified bankruptcy attorney. Trying to negotiate with your creditors yourself can be very difficult.  Creditorss can be bullying and less than sympathetic in the first instance.  But when they are dealing with a qualified professional, it is a different story and they will not be able to pressurize, bully or force you into an agreement that may not be in your best interests. An independent third party who has experience will get you the best deal possible. Remember you could be entering into an agreement for several years, this agreement will have an impact on your file for the foreseeable future so step back, do not rush into anything and get some good advice.

Other routes that could be taken may include agreeing to delay the repayments with the loan company until the student’s financial situation has changed, or arranging to spread the costs into smaller amounts each month. If this is still not possible, the US Department of Education may decide to reclaim the money in other ways – through garnishing the student’s salary, taking any tax benefits he or she is entitled to, or suing them and establishing liens on their property.

Student loans are not something to be considered lightly. They should be a last resort, turned to when all other options are exhausted. Federal loans offer greater flexibility than private ones, so these should be considered first. If you do find yourself in debt after your education, explain your situation to the loans company and try to establish a suitable repayment plan with them before your situation becomes worse.

Student Loans And Bankruptcy First Steps:

• Make a full, complete and honest list of all the money you owe.

• Make a list of who you owe that money to, and if you are overdue on any of the amounts and by how much.  None of this should take you very long.  You already know it in your head.  The difficult thing to do is to put it down on paper and see it in real like, the true facts about your financial situation. How can you possibly hope to sort anything out if you do not have a true and brutally honest picture?  It’s hard but it is one of the first things you must do, and do it NOW. It will not go away, it will get worse.  And you know what when you do this exercise you will actually feel better.  You are now on your way to taking control and sorting things out.

• Contact your old college/university/School.  See what resources they have available for students and ex students with debt problems.

• Speak to law schools in your area and see if they offer any free clinics.  Law schools, colleges and universities often have clinics set up to give their students practice in dealing with real live people and real live situations.

• Speak to a qualified bankruptcy attorney. No you do not have to pay for this service. Most of them offer a free call where they will have a consultation with you. So take advantage of this and make that call get some good expert free advice.  Try contacting and calling a few of them.  You cannot lose, and believe me you will get some great information for nothing.

• Take ACTION now.  You will feel so much better that you have done something.

I hope you have found some of the answers to the question ‘ can you file bankruptcy on student loans’? here.