Declaring bankruptcy can discharge the majority of consumer debt, except for a handful of debts such as alimony, child support, fraudulent debt, tax obligations, and student loans. Filing for bankruptcy with student loans is difficult, but not impossible for debtors in exceptional circumstances.
Which situations allow student loans to be discharged?
If your primary objective in filing bankruptcy is to get your student loans discharged, know that this is an unlikely outcome. Consulting with a local attorney who is familiar with bankruptcy law can help determine your chance of success. Generally, bankruptcy cases that succeeded met at least one of these conditions:
- The debtor is physically and mentally incapable of earning an income to sustain their payments, and can provide documentation of their condition and testimonies from medical providers to support their claim.
- The debtor tried to repay a large student debt for 10 years but could not find full-time work that could sustain their student loan payments.
- The debtor is of retirement age but still has over $100,000 in student loan debt.
What is the process to discharge debt from student loans?
Student loan bankruptcy can be part of the two types of bankruptcy. In Chapter 7, the debtor’s assets are liquidated by the trustee, and all unsecured debts of the borrower are wiped out by the bankruptcy court. Reorganization of debt is done in Chapter 13 bankruptcies to come up with a three- five-year repayment plan.
The first step to pursuing bankruptcy for your student-loan debt is to hire an experienced bankruptcy attorney. Since bankruptcy laws heavily favor a creditor over a borrower, getting an attorney will help determine the best option for your case given your specific situation.
To get your bankruptcy petition approved, you should be able to prove that the debt from your student loan causes undue hardship to you and your dependents based on the following criteria:
- Debtors cannot repay their lenders without failing to maintain a minimum standard of living for themselves and their dependents.
- There is a certainty of hopelessness, in that undue hardship will likely continue throughout the repayment period, as borrowers are unable to change their circumstances. Typically, this applies to those with permanent disabilities, or serious physical or mental illnesses.
- Debtors took legitimate efforts and tried alternative options to repay their loans for at least five years, or have faced extenuating circumstances before five years have passed.
Typically, requests to wipe out student-loan debt are made at the end of a petitioner’s bankruptcy proceedings, and the conditions to be met are subject to the interpretation of the bankruptcy court judge.
What if bankruptcy cannot discharge my student loan debts?
Bankruptcy filing may still be the right move for you even if you fail to have your student loans wiped out. Individuals struggling to make payments for credit card debts, mortgages, and other loans may find that personal bankruptcy helpful in freeing up funds to pay for student loans. Repossession of property by a creditor and collection by debt collectors and collection agencies are temporarily prevented by the automatic stay that comes into effect after filing bankruptcy.
A bankruptcy lawyer can help you get started.
If you are planning to file for bankruptcy in Kentucky, get in touch with reliable bankruptcy attorneys at Farmer & Wright, PLLC who can discuss your debt relief options, such as bankruptcy filing or debt-settlement, and provide legal assistance to help you get a fresh start financially.