For those overwhelmed with their debt problems, bankruptcy can provide a way out by eliminating their debts or restructuring them in a payment plan. While you will definitely want to talk this over with a professional such as a bankruptcy lawyer, it’s worth considering this option as a way to handle your out of control debt. Will all debts be wiped out in a chapter seven bankruptcy case? Well, not necessarily. Some obligations, including student loans, are very difficult to get rid of.
There are a number of debts which will not be discharged, or eliminated, by bankruptcy. Any child support obligations or Federal taxes are not usually discharged in bankruptcy. Likewise, any criminal fees or judgments resulting from a drunk driving case will still have to be paid even if you successfully file bankruptcy. Student loans are another common form of debt that is not usually done away with.
When it comes to student loans, you should understand the rationale behind this. Congress makes it difficult for student loans to be wiped out because they want to encourage lenders to make student loans in the first place. This encourages more people to go to college and hopefully earn a higher income in the future.
This is why getting rid of your student loan obligations is tricky in most bankruptcy cases. In order to have a chance of doing away with your student loans when filing for bankruptcy, you have to show the court that you are experiencing an undue hardship. In other words, the question is whether you would be able to maintain a minimum standard of living if you are forced to pay back the student loans.
The bottom line is that you have to be in severe financial circumstances for the judge to consider wiping out your student debt. Unfortunately, this criterion is quite vague and can be interpreted differently by different judges.
This can be a good thing or a bad thing, depending on which judge you end up with. Have you honestly done your best to repay your loans? Are your hardships unlikely to improve anytime soon? These are the kinds of questions that the judge will ask you, and the result can depend on how bad your circumstances are, and whether they are caused by a severe illness or disability.
If you are unable to get rid of your student loans with bankruptcy, you may want to look into the possibility of an administrative discharge. The chances of qualifying are still steep, but it’s worth looking into.
The administrative discharge does away with your student loans if you have joined the peace corps or the military, or if you are permanently disabled.
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