Filing Bankruptcy on Student Loans

Filing bankruptcy on student loans is legal although hard to get. Student loan debt is an unexpected financial burden to many college graduates. College loans haunt many students who finished their degrees and those who attended without completing a degree. With or without the degree the loans racked up and amass a huge debt that can drag down credit scores, impact home loan applications, and more. Falling behind in student loan repayment and coming to terms with the reality that filing bankruptcy on college loans is the only way out is a harsh and overwhelming financial situation. Many students do not know how much student loan debt they will accrue throughout college. Signing the education finance papers agreeing that you completely understand the student loan terms and agreements is very different from paying down student loan debt over the next decades of your life. When hardship makes it too much of a financial burden to repay student loans other avenues of repayment or forgiveness should be sought, including filing student loan bankruptcy. A portion of college goers will need to know how to file bankruptcy on college student loans.

Who Can File Bankruptcy on College Student Loans?

Many people have misconceptions about how to file bankruptcy on college student loans. Oftentimes, there is information that says that no one can file bankruptcy on student loans, but this is not the case. If you meet certain criteria then it is possible that you will qualify for student loan bankruptcy. Those who end up being able to file bankruptcy on their college student loans go through a long process to get it done. The main concept behind being able to file bankruptcy on college student loans is called "undue hardship". Although you may think that paying your student loans creates undue hardship for you, it is not you who gets to decide. Anyone can file for bankruptcy on student loan debt.

Proving Undue Hardship in Student Loan Bankruptcy

The court decides through the government's test if you can get a determination of undue hardship. Although anybody can file for bankruptcy on college student loans, it is not everyone who will end up with a positive outcome. The government uses what they call a three-pronged test to determine if paying student loan debt creates undue hardship. The following excerpt from a Department of Education website* details what the court uses to find whether you meet the undue hardship qualification when you file for college student loan debt:

  • If you have to repay the college loan then you can't maintain a minimal standard of living.
  • There is evidence that this hardship will continue for a significant portion of the loan repayment period.
  • You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).

To qualify for the discharge of your student loan debt through bankruptcy you have to meet all three of those criteria. Although there is the statement that says five years, if you need to file bankruptcy on college student loans before exactly five years then do it if you think you meet the other criteria. Usually, there are other payment options available for several years. College student loans do not go immediately into repayment. There is a leeway period between your last day of class and your first payment date. If you are just recently out of school and think that there is no way to handle the financial burden then you should utilize other resources before filing bankruptcy. These postponement resources are forbearance and deferment. They should be used before attempting to file for bankruptcy. Do not let your student loans default.

If you have been out of class for awhile and you are disabled then you should consider filing for a disability discharge. As with bankruptcy, not everyone will get their loans forgiven or discharged because of disability and there is a stringent application process.

How to File for Bankruptcy on Student Loans

To actually file for bankruptcy on college student loans you have to file for Chapter 7 or Chapter 11 bankruptcy. The college student loan portion of the bankruptcy is separate from the rest of your bankruptcy. When you call around to find a bankruptcy lawyer make sure to ask them if they are qualified to work with student loan bankruptcies. Not every bankruptcy lawyer can file on student loans. You will also have to pay extra money to file bankruptcy on college student loans. Be prepared for the extra cost of filing bankruptcy plus filing bankruptcy of college loans.

There are two different parts to your bankruptcy if you are filing on student loan debt. Your regular debt must be discharged first, and then the court will look at your bankruptcy filing on the college student loans. If you have a situation that you think meets the three-pronged test to determine undue hardship then press on when folks tell student loan bankruptcy never happens. There are people who get their student loans discharged through bankruptcy. Contact a lawyer and get the process started.

Final Words: Repaying Student Loan Debt and Filing Bankruptcy

Student financial aid is the most utilized means of going to college. When you find yourself in a situation that is wrecking your credit then you need to take steps to fix your situation. Not paying student loans looks terrible on your credit report. Whether you need to file for bankruptcy on college student loans, use the Income Based Repayment plan, or utilize other resources, stay in touch with the lender. The worst thing you can do is let your loans default.

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