Apply Now
Whenever a person considers filing for personal bankruptcy and student loans make up a good part of their debt, there is a good chance the loans will not be discharged. In 1998, when the governments rules regarding bankruptcy were changed, student loans were ruled to be non-dischargeable as many financial institutions were losing million of dollars. The reason being that many financial institutions were losing millions of dollars and the government was losing millions as well because the federal government guaranteed many of these student loans.
Today, the person claiming Chapter 7 bankruptcy has to show that an undue financial hardship will result if the loans are not discharged. As in many cases with bankruptcy and student loans make up a large portion of the individuals debt, a portion of the loan may be discharged by the judge, but most of the loan will remain a legal debt. If the student loans have been sold repeatedly to other lenders with varied interest rates, the exact balance may be hard to determine. In cases such as this, some or all of the entire balance may be discharged.
Under the provisions of Chapter 13 bankruptcy, a debtor can arrange to have all of their unsecured and secured debt become part of a repayment plan through a court trustee. In these cases of bankruptcy and student loans are included, the person must meet specific criteria, for example showing they have sufficient income to make the monthly payments determined by the court to pay off the total debt within five years.
Determining if Debtor Can Pay
In order to file Chapter 13 bankruptcy, an individual needs to prove that they can repay the debt. For instance, if their total debt is $100,000, the trustee divides that total by 60 months and comes up with a monthly payment of $1.667 a month. The individual must show that they can pay this monthly payment and have enough left over for living expenses. If they are able to meet this criterion then they may be able to file Chapter 13 bankruptcy and include their student loans in the deal.
However, if their income does allow for expenses plus the payment to the court, Chapter 13 will not be allowed. Their other option may be to file Chapter 13 bankruptcy to eliminate most of their other debts, freeing up money for them to make payments on student loans. Making the monthly-required Chapter 13 bankruptcy payment in addition to student loan payments may be a struggle for some. One option is to secure a loan with lower interest rates and lower payments to pay off their student loan debt.
Source: http://www.3x24.com/bankruptcy-and-student-loans-do-not-always-go-together/801801
