Federal Student Loans Bankruptcy
Many recent and not-so-recent college grads are finding that the tough economy has made earning enough money to pay off federal student loans more difficult than ever. But, as you may already know, federal student loans are difficult to discharge in bankruptcy court.
The only way to discharge federal student loans in personal bankruptcy is by proving undue hardship - a standard that is poorly defined and difficult to meet. But bankruptcy could provide relief from other debts that make meeting student loan payment difficult.
To ask a lawyer about discharging your student loans in bankruptcy, please fill out the free evaluation form below to arrange a no-obligation consultation with an attorney near you.
Federal Student Loans in Chapter 13 Bankruptcy
Before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) passed, the bankruptcy court treated federal student loans differently from private student loans. Now, though, both are handled the same in bankruptcy court.
In Chapter 13 bankruptcy, that means the following:
- Include your student loans in your repayment plan: Chapter 13 bankruptcy works by letting filers catch up on old debts with a three- to five-year repayment plan. If you have federal student loans to repay, you can include those loans in the repayment plan.
- Eliminate less-pressing debt: Another benefit of filing for Chapter 13 is that you can potentially eliminate some lower-priority debt after your repayment plan has finished. This should free up more of your money for payments toward your student loans.
Federal Student Loans in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is more attractive to many filers because it does not require that filers repay some of their debt. Rather, it offers a complete discharge of some or all of a filer’s unsecured debts. In most cases, federal student loans (though they are unsecured) cannot be discharged in Chapter 7, but this type of bankruptcy can help in other ways:
- Eliminate other debts to free up cash: A Chapter 7 filing might allow you to discharge other unsecured debts (such as credit card or medical debts), which would then free up your money to make payments to your student lender each month.
- Apply for a hardship exemption: In some rare cases, a Chapter 7 filer can have federal student loans discharged by proving that making payments on the loans would cause "undue hardship." In general, the hardship exemption is difficult to prove and requires the filer to demonstrate to the court that making payments on the student loans would prevent her from maintaining a minimum standard of living. Further, in order to have federal student loans discharged, the filer must show that her living situation (including income and expenses) is not likely to change significantly for the repayment period of the loan.
Connect with a Bankruptcy Lawyer to Learn More about Federal Student Loans
If you're ready to know more about whether you can expect to have your federal student loans discharged in bankruptcy court, it’s time to connect with a bankruptcy attorney practicing in your area.