Filing for Bankruptcy When You Have Student Loans

Obtaining a higher education is critical when it comes to finding jobs in certain industries. Unfortunately, going back to school usually isn’t cheap, as students are required to pay rising tuition costs, in addition to fees for books, and in some cases, room and board. To cover these costs, many people turn to student loans, which in the right circumstances can be a reasonable investment. However, they can also end up resulting in insurmountable debt for those who have difficulty securing employment or finding a job that pays enough to cover their interest payments, let alone the principal. Although this type of debt is still generally non-dischargeable even for those who file for bankruptcy, there are exceptions, so if you owe substantial student debt and are considering filing for bankruptcy, it is important to contact an experienced bankruptcy lawyer who can evaluate your case and explain your legal options.

Exceptions to Non-Dischargeable Student Loans

Even though student loans are not always dischargeable, bankruptcy is still a viable solution for those who are struggling financially. Fortunately, there are also exceptions to this general rule, under which debtors can have their student loans discharged, although most involve proving that the borrower will face undue hardship if the loan is not discharged. Proving hardship is not an easy task and requires evidence that:

• A minimal standard of living cannot be maintained when the borrower is being forced to repay student loans;
• Additional circumstances exist that complicate the ability to repay the loan and these circumstances will most likely continue through the repayment period; and
• The debtor has made a good faith attempt to repay what he or she owes.

Alternatively, a court could use a totality of the circumstances test to determine whether a debt should be discharged. In these cases, the judge will assess all relevant factors before deciding whether undue hardship exists. In the event that, after looking at the facts of a case, a bankruptcy court decides that repayment would cause undue hardship, it could take any of the following steps:

• Fully discharge the loan, which means that all collection activity will cease and the borrower will not be required to repay the remaining portion of the debt;
• Partially discharge the loan, so that the borrower is only required to repay a portion of what they owe; or
• Order continued repayment of the loan, but allow the parties to change the terms, such as lowering the interest rate.

Fortunately, even if a court does not discharge a borrower’s student loans, there are still options available, including a number of repayment plans that enable the borrower to pay back the loan according to a more reasonable schedule.

Call Our Law Firm Today for a Free Case Evaluation

To speak with one of the experienced bankruptcy attorneys at Whitten & Whitten about your own student loan debt, please call 219-756-0555 or send us an online message. Initial consultations are conducted free of charge, so please don’t hesitate to contact our legal team today.