Student Loans and Bankruptcy
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College costs are skyrocketing, and more students are having to take out tens of thousands of dollars in student loans in order to graduate. Unfortunately, it can take awhile to land a job to repay those loans, and with the average length of student loans increasing to 10-15 years, chances are you might end up having to file bankruptcy sometime during that repayment period.
In most bankruptcy circumstances, students loans cannot be discharged. You will have to disclose your loans in the bankruptcy forms, but you will have to continue to repay them rather than having them discharged with your other debts.
There is one way to have your student loans discharged in your bankruptcy proceeding, and that is to prove hardship. You typically have to prove 3 things:
1. You’ve made a good effort at repaying the loans. Payments being made for 5 years usually show that you have attempted to repay the student loans.
2. If you are forced to repay the student loans, you will not be able to maintain a minimal standard of living, in other words, you will be living in a box and eating Ramen noodles. Of course each court can determine what “minimal standard of living” means.
3. You must prove that the financial hardship is going to continue for a large portion of the student loan repayment period. If the hardship is only a year or a few months, it’s not likely that the loans will be discharged.
You will have to petition the court during your bankruptcy proceedings that you wish to try to prove hardship and that your student loans should be discharged. Each court and trustee has different standards for the hardship, so it may be worth it to talk to an attorney to determine if its worth it to try.
June 25th, 2010 at 6:00 pm
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