Bankruptcy and Student Loans: Exploring Options

Bankruptcy and Student Loans: Exploring Options

When you are facing bankruptcy, a significant expense you may need to deal with is your student loans. Millions of Americans have thousands of dollars in debt due to federal and private student loans. But can these student loans be forgiven like other debts, such as credit card debt?

When debt is taking over your life, it may be time to explore your options for bankruptcy. If you are having difficulties getting your student loans forgiven, you may have options to reduce or have some that are forgiven; however, student loans are not treated the same way as other debts. Here is what you need to know to get your debts relieved.

Can My Student Loans Be Forgiven?

For many college alumni, getting their student loan debts forgiven can be one of the largest forms of debt relief. However, if you are facing bankruptcy and you have significant student loans, you may need to consider alternate options for your debt relief of student debts.

Student loan debt is treated differently from other types of debt. For example, if you have a credit card or medical debt, these debts are part of your bankruptcy filing. However, if you are swimming in significant student loan debt, you may need alternate options to help you consolidate and reduce the amount you spend on your student loans. 

That is because student loans are a federal commitment. That means you are facing a different set of rules and may not be able to get relief like other types of debt. But that does not mean that you are without options.

What Debts Are Eligible for Bankruptcy? 

When facing bankruptcy, knowing what debts are available to be relieved is essential. Even if your student cannot be relieved, you may still be able to reduce your other debts, making it easier for you to pay off these debts even if you cannot have them wholly forgiven.

For example, if you were facing any of the following debts, you may have grounds to have your debts relieved through bankruptcy:

  • Credit card debt
  • Medical debt 
  • Personal loans 
  • Other unsecured debts

In many cases, debts that are considered consumer debts; can be discharged. That is why debts like student loans cannot be forgiven. Other nondischargeable debts include taxes, alimony, and child support.

Discharging these debts alone can help you recover from crushing debt and make a difference in securing your financial future.

Types of Bankruptcy

When filing for bankruptcy, you have a few options that vary depending on the type of relief they provide. These options May not be the best option for you depending on the specific details of your debt and how you want to forgive those debts.

Unsure what your bankruptcy options are? Below are two of the most common types of bankruptcy our clients file. Talk to a lawyer about your options, which will be best for your financial situation, and the debts you have accrued.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is typically referred to as liquidation. This type of bankruptcy refers to using some of your assets or all of them, depending on the case, to pay off part or all of your debts. Once your assets have been liquidated and these debts have been paid, the bankruptcy judge will forgive the remainder.

This type of debt relief can be much quicker than other options, such as Chapter 13 bankruptcy, but it does require you to give up some of your assets.

However, the right lawyer can help you reduce the assets you are forced to give up during this time. Your lawyer can also help you keep your house or certain assets that you would need to avoid undue hardship during bankruptcy proceedings.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is defined by its repayment plan. When you file for Chapter 13 bankruptcy, you and your lawyer will determine a five-year repayment plan for your debts. These debts will be consolidated into one payment, and you will be expected to maintain these payments over that 5-year period.

If any changes need to be made to your plan, you and your lawyer can speak to the court later as needed, but this plan is intended to be manageable for a wage-earning person.

Do I Have a Chance to File for Student Loan Bankruptcy? 

While getting your student loans discharged through bankruptcy is difficult, it is not impossible. Some people can file for bankruptcy and reduce or dismiss most or all of their student loan debts.

Filing for student loan bankruptcy requires you to prove that repaying these loans would cause undue hardship. For example, if you cannot afford rent, food, or essential utilities because of your student loan payment, you may be eligible for dischargement.

Remember that filing for student loan bankruptcy requires more effort than a typical bankruptcy filing. This is because you must first file for bankruptcy, typically under chapters 7 or 13. Once you have filed for bankruptcy, you must also file an adversary proceeding. 

This is where you will need to prove that the pressure of repaying your student loans has caused a significant negative financial impact. This may include lowering your credit score or being unable to pay for both your student loans and your basic living expenses.

Filing for bankruptcy is not always the best option for those seeking to reduce or forgive their student loans. For the best option for your case, visit website or speak to a lawyer about your options for financial freedom.

Explore Your Options with a Lawyer

Getting out of debt can be difficult and require time in bankruptcy court. However, student loans do work by different rules, and this can make your case more complex. Because of this, you may need a lawyer to help you explore your options for debt relief from student loans. 

Fortunately, you do not have to explore these options alone. You can instead speak with a lawyer who can help you find the best options for your filing, determine what assets you can keep, and provide the financial freedom you need following a significant debt pilot.

Need answers now? Talk to a lawyer about your options for overcoming your student loan debt. Tools are out there to help you overcome your debts and get answers.