For many, the bulk of their debt is from the money they borrowed to attend college. Many people filing for bankruptcy either have a big chunk of student loan debt or are put over the financial cliff when their student loans come due. Furthermore, many of the most common questions from people considering bankruptcy relate to student loans. “Will filing alleviate my student loan debt?” “Can my student loan debt be discharged?” “Is bankruptcy an option if my debt is from student loans?”
Unfortunately, student loan debt is not discharged during a bankruptcy, except in rare cases. There are cases in which student loan debt might be discharged when it would cause the debtor undue hardship.
The rarity of discharging student loan debts was not always the case. There was a period of time in the 1970s when students would pay their college tuition on borrowed money, only to file for bankruptcy immediately following graduation before they began earning full-time wages. Eventually, lenders caught on and changed the rules regarding student loan debt and bankruptcy in the late 1980s.
Nowadays, there are three factors considered when determining if student loan debt can be discharged during a bankruptcy filing. They are:
• Whether or not repayment will prevent a borrower from maintaining a minimum standard of living.
• Whether or not repayment will make it difficult to maintain a minimum standard of living during the repayment period.
• Whether or not the borrower made a good faith effort to repay the student loan(s) before filing for bankruptcy,
What are Your Options?
If you are facing financial hardship because of your student loans or your financial struggles make repayment of your student loans difficult, you do have options, even if you cannot discharge this debt in a bankruptcy. Student loan programs include deferment and forbearance options that allow you to postpone repayment on a temporary basis. This gives you an opportunity to deal with other debts or to find employment and save some money before student loan payments are due.
If you are considering bankruptcy and you have student loan debt, make sure you discuss it with your bankruptcy attorney. If you have not yet contacted a bankruptcy attorney, but you are concerned you are headed toward a financial crisis, we can help. Contact the law office of Frank J. LaPerch, PC at 845.942.5500.