Bankruptcy and School Loans, What Options Do I Have?

In most cases, though not all, student loans will not be discharged if you file for bankruptcy and are successful in having other debts discharged. But that doesn’t mean you don’t have options.

This Low Cost Legal guide explains your options and gives you direction for how to lighten the burden of school loans.

When Student Loans Can Be Discharged in Bankruptcy

According to the U.S. government’s Department of Student Aid, there is only one condition that allows for school loans to be canceled through bankruptcy. If repaying the loan would cause undue hardship to you or your dependents, a bankruptcy court may discharge the school debt.

This is true for direct loans, Perkins loans and the Federal Family Education Loan program known as FFEL. Both Chapter 7 and Chapter 13 bankruptcy law gives the court the ability to discharge student loan debt when undue hardship would be the result of having to repay it.

Conditions for Claiming Undue Hardship

There are several ways the courts uses to determine if a school loan repayment would produce serious hardship. According to the federal student aid department, these are:

  • If repaying the loan would prevent you from maintaining “a minimal standard of living” for yourself or your dependents.
  • Your present financial situation is long-term due to illness, disability or another factor.
  • You have attempted to make payments in the years before filing for bankruptcy. Some courts require you to have made payments for 3-5 years before considering a request to discharge them.

If School Loans are Discharged in Bankruptcy

If you are successful in having loans discharged through bankruptcy, you will not have to repay any remaining portion of your loan. In addition, you will regain your eligibility for receiving federal student aid if you are able to return to school in the future.

Getting Help for Bankruptcy and School Loans Debt

If you are having trouble paying your federal student loans, then consider seeking help from a low-cost legal professional. You may be able to find inexpensive or free legal help in filing for bankruptcy and having your debts discharged, including federal student loan debts.

What if School Loans are Not Discharged?

If you are not successful in having your student loans forgiven, your next step would be to contact the lending agency and request a lower monthly payment. In many cases, the debt can be spread out over more years, significantly lowering the monthly burden of the loan payment.

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