How bankruptcy affects student loans

More so then not, if you have student loans and file bankruptcy, you are still going to end up repaying your student loan debt. Under federal law, student loans are not dischargeable in bankruptcy unless you can prove the payment imposes an “undue hardship” on you or your dependents. Because it is nearly impossible to demonstrate “undue hardship” most people find that when they file bankruptcy, they are left paying off their student loans.

This rule of thumb also holds true with private student loans. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, private student loans are treated the same as federally-backed student loans when it comes to bankruptcy.

If you are a borrower of student loans, however, not all hope is lost. When filing Chapter 13, you could have your student loans consolidated with the other bills you are filing bankruptcy on. Under this chapter, you repay your dept over the course of three to five years. By including your student loans in the repayment plan, you may be able to put a dent in the loan balances. You probably won’t be able to pay off all your student loans during this time frame. The remainder amount due will still need paid on after your Chapter 13 payment plan is complete.

Also in Chapter 13, the borrower can argue that the amount student loan lenders claim he or she owes is erroneous. This is because student loans that are transferred between lenders numerous times – which can happen a lot – lose their true debt amount. By filing an objection to the lender’s claim, the borrower may be able to get the court to lower their amount due for the student loan.

Aside from bankruptcy and Chapter 13 consolidation, borrowers can consider consolidating their student loans into one monthly payment. This alone might be enough to alleviate some hardship and prevent the borrower from dragging his or her loans into bankruptcy court. Borrowers are also offered a large assortment of deferment and forbearance options that postpone the repayment of their loan during difficult times.