The Truth about Student Loans

While the cost of getting a degree has risen dramatically, the pay scale for the jobs many graduates receive has generally not kept pace. When the money the graduate earns does not cover all bills, including their student loan payments, the graduate turns to others to see what student loan debt relief can be provided. Many people, saddled with high student loan payments, turn to bankruptcy and wonder if there is any relief that can be provided.

General Rules

The general rule in bankruptcy is that student loans ARE NOT dischargeable under the Bankruptcy Code. This means that if you file a bankruptcy case in the United States, and do nothing more, you will still be personally liable for your student loans after the bankruptcy case is over. However, there is one exception to this general rule. The code states that a debtor needs to pay back their student loans after a bankruptcy discharge “unless accepting such debt from discharge… would impose an undue hardship on the debtor and the debtor’s dependents.” This may seem promising, but the truth is that what a student loan debtor needs to do, and prove, in order to fall into this exception is daunting.

If you and your attorney believe that you do fall into this exception, the first step is for you to file a bankruptcy case. The second step, once the case is filed, is for the debtor to file a lawsuit against each student loan company that the debtor is asking the bankruptcy court to issue an order discharging the student loan from. Third, if the bankruptcy court judge agrees with your position, that the repayment of the student loan debt(s) would cause an undue hardship for you and your dependents, the court will issue an order discharging the student loan debts.

What Is “Undue Hardship”?

Because “undue hardship” is such a vague term, it tends to be very difficult to prove that this is the case for your situation. We are willing to bet that your interpretation of undue hardship will vary greatly from the student loan companies’ and judge’s interpretation. In most cases, you will still be liable for your student loans at the end of your bankruptcy case.

Can Bankruptcy Provide Student Loan Debt Relief?

Thankfully there is something that can be done to get the student loan debt relief you need. By filing a Chapter 13 bankruptcy, a debtor is able to consolidate their payments into one affordable payment they pay to their trustee every month. These payments will cover a little of all debts owed, including student loans. When the payment plan is over, all debts, besides student loans, that were included in the Chapter 13 plan, are wiped out. Even though a debtor still has to pay their student loans after a bankruptcy discharge, they now have fewer other debts that they owe payments on. This should in turn make it easier for a debtor to pay their monthly student loan payments.

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