Author Topic: Is Declaring Bankruptcy on Student Loans Even Possible?  (Read 2179 times)


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Is Declaring Bankruptcy on Student Loans Even Possible?
« on: Feb 20, 2009, 05:07:16 PM »
hen facing a severe financial crisis, many people turn to bankruptcy as a way to wipe out their debts and experience a new financial beginning. This is certainly an option that you should consider, but you should discuss this carefully with your lawyer to determine if this is the best option for you. One important consideration is what actual debts you wish to be wiped out. Declaring bankruptcy on student loans, for example, is not usually allowed.

There are a number of debts which will not be discharged, or eliminated, by bankruptcy. Any child support obligations or Federal taxes are not usually discharged in bankruptcy. Likewise, any criminal fees or judgments resulting from a drunk driving case will still have to be paid even if you successfully file bankruptcy. Student loans are another common form of debt that is not usually done away with.

When it comes to student loans, you should understand the rationale behind this. Congress makes it difficult for student loans to be wiped out because they want to encourage lenders to make student loans in the first place. This encourages more people to go to college and hopefully earn a higher income in the future.

With that in mind, doing away with student loans by filing bankruptcy is difficult. You have to prove what is known as undue hardship, which basically says that you would not be able to pay back your loans while maintaining a minimum standard of living. In other words, you have to be in pretty bad financial straits in order to get your student loans wiped out. Just how bad the situation has to be depends on the particular judge that happens to be presiding over your case.

The law is not crystal clear on this matter, which can be a blessing or a curse depending on how your judge views your case. Judges also expect you to prove that you have made reasonable efforts to pay back their loans, and that your situation is unlikely to improve (such as because of an illness or injury).

If you are unable to get rid of your student loans with bankruptcy, you may want to look into the possibility of an administrative discharge. The chances of qualifying are still steep, but it's worth looking into. For example, if you have become permanently disabled, you may qualify for administrative discharge which wipes out your student loans. You may also be able to eliminate your loans by joining the peace corps or military service.


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Re: Is Declaring Bankruptcy on Student Loans Even Possible?
« Reply #1 on: Dec 21, 2009, 06:59:31 AM »
very nice post and definately is something that i am looking in to a little more thoroughly.