How Will Bankruptcy Affect My Student Loans?

Generally, student loans are considered nondischargeable debts in bankruptcy, but filing bankruptcy may still be the right choice for a student loan borrower struggling with debt. You might be able to obtain a hardship discharge of your student loans in Chapter 7 bankruptcy or Chapter 13 bankruptcy, or you might be able to consolidate your monthly payments on all debts—including student loans—into one affordable plan payment by filing Chapter 13 bankruptcy. If you are experiencing difficulty keeping up with your student loan or other debt payments, a Washington DC bankruptcy attorney can review your financial situation and explain your available bankruptcy options, helping you understand how the different chapters of bankruptcy will or will not affect your student loans.

The Hardship Discharge

A debtor who can successfully demonstrate to the court that paying his or her students loans poses an undue hardship on the debtor and his or her dependents may be granted a hardship discharge. If you receive a hardship discharge of your student loan debt, you are no longer liable for paying it. Examples of situations that may warrant a hardship discharge include:

  • The borrower received no benefit from the education
  • The borrower attended a fraudulent school
  • Ongoing physical or mental impairment prevents the borrower from working

Both Chapter 7 and Chapter 13 debtors can seek a hardship discharge, but it can be very difficult to obtain one. Courts vary in their rulings regarding hardship discharge requests. To determine if you may qualify for a hardship discharge of your student loans, contact an experienced Maryland bankruptcy attorney.

Chapter 13 Bankruptcy

In addition to preventing student loan lenders from continuing collection efforts while the bankruptcy case is pending, including wage garnishment, Chapter 13 bankruptcy may help some student loan borrowers get a handle on their finances if they are struggling with debt. A qualified Maryland bankruptcy lawyer can help you decide if Chapter 13 bankruptcy might be the best solution to your particular debt situation.

Chapter 13 debtors enter into a three to five year repayment plan that allows them to pay off secured and priority debts in full (e.g., car loans and certain taxes) and to pay a percentage of their total unsecured debt (e.g., credit cards and students loans). While you are in Chapter 13 bankruptcy, instead of making separate payments to each creditor—including student loan lenders—you will make one affordable Chapter 13 plan payment based on factors like your current income and expenses. A trustee will then distribute the money paid into the plan to creditors. Even though you will still be responsible for paying back the balance on your student loans after the bankruptcy is complete—unless you are granted a hardship discharge—the consolidated plan payment may provide you with temporary relief if your current loan payments exceed your means.

When you exit Chapter 13 bankruptcy after successful completion of the plan, your secured and priority debts should be paid in full, and if you are eligible for a Chapter 13 discharge, you will not be liable for the remaining balance on any dischargeable unsecured debts, including credit cards and certain income taxes. Therefore, with your non-student loan debt under control, you may be in a better position post-bankruptcy to afford your student loan payments.

If you feel like you are drowning in debt, contact a knowledgeable Washington DC bankruptcy lawyer today to learn how bankruptcy may be able to help with your student loans and other debt. Bankruptcy might be the financial tool you need to obtain a fresh start.

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