Discharge of student loans received popularity in the 1970's. Many individuals would file for bankruptcy shortly after completing their expensive education. The goal was to discharge these student loans before they began earning money
The wording of the exception of a "hardship discharge" and what is considered a student loan has recently been broadened so that most student loans made by nonprofit groups or the government are now considered student loans. This only applies to the actual student and not a co-signor. So a parent signing for one of their children could not have this debt discharged. In addition, this exception does not include debts to an educational institution for tuition. If the loan is non-dischargeable then the petition on the loan is also not going to be discharged.
So we turn to "undue hardship." Most published court opinions agree that "undue hardship" means more than garden variety hardships that come with the costs of future payments. Several circuit courts of appeals have developed a three-prong test.
In summation, the debtor cannot maintain a minimal standard of living and his dependents are left with the debt, some additional circumstances in regard to the standard of living would extend over the life of the repayment of the loan, and the debtor has tried to the best of their ability to pay off the loan according to the plan.
The ideal debtor who will successfully discharge student loans are the low-income debtors. The debtor has the burden of proving their hardships. Any reason that makes this loan impossible for the debtor should be made known to your attorney. For example, unemployable debtors, underprivileged debtors, a total lack of available jobs suited for the debtor's skills, certain disabilities, etc. If any of these situations exist, your attorney will strive to prove any extenuating circumstances to the court to get these student loans discharged.Read more about bankruptcy at www.bankruptcyhome.com
Dont expect to weasel out of those student loans by filing bankruptcy. Even if student loan debt makes up a majority of an individuals debt theres a good chance that the loan will not be discharged. The governments rules for bankruptcy were changed in 1998 and student loans were ruled to be a non-dischargeable item.
The reason being that many financial institutions were losing millions of dollars and the government was losing millions as well because the federal government guaranteed many of these student loans.
Today, the person claiming Chapter 7 bankruptcy has to show that an undue financial hardship will result if the loans are not discharged. As in many cases with bankruptcy and student loans make up a large portion of the individuals debt, a portion of the loan may be discharged by the judge, but most of the loan will remain a legal debt.
In other cases in bankruptcy and student loans are reviewed, if the loans are found to have been sold repeatedly to other lenders and with changing interest rates it is difficult to determine an exact balance, some or all of the loan may be discharged.
The provisions of Chapter 13 bankruptcy are different for student loans. An individual filing can have all of their secured and unsecured debt become part of a repayment plan through a court trustee. If student loans are in the mix, then the individual must show they have enough income to make the monthly payments to pay off the student loan debt within five years.
Determining if Debtor Can Pay
Fo example, if a person has a total outstanding debt filed in bankruptcy court of $100,000, the trustee will divide that total by 60 months to come up with a monthly payment of $1,667 a month. If the person can show earning of that amount plus money for daily living expenses, they may be able to file Chapter 13 bankruptcy and student loans will be included in the amount.
However, if their income does allow for expenses plus the payment to the court, Chapter 13 will not be allowed. Their other option may be to file Chapter 13 bankruptcy to eliminate most of their other debts, freeing up money for them to make payments on student loans.
For many filing bankruptcy and student loans payments afterwards will take up a large portion of their income and after a period of time, they may be able to secure a loan with lower interest rates and lower payments to pay off their student loans.
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