People can accumulate multiple types of debt over their adult lives. Many people carry credit card balances from month to month. Those without health insurance or with major medical conditions may have medical debt to address. For many successful professionals, student loans may be the single largest debt that they owe.
Particularly when people attend graduate programs or prestigious schools, they may finish their education with six figures or more in student loan debt. In some cases, people do not even graduate with degrees but still have massive educational debts to address. Although interest rates on student loans are lower than the rates on credit cards, the monthly payments can strain a borrower’s budget.
When student loan debts put intense pressure on an individual’s finances, they may start looking into debt relief options. Bankruptcy is one of the most aggressive and effective ways to address personal debt. Is it possible to eliminate student loans during bankruptcy proceedings?
Some loans may be dischargeable
There’s a reason that people often assume they cannot discharge their student loans. Federal bankruptcy rules limit the scenarios in which the discharge of student loans is possible. The filer has a longer process ahead. They must submit paperwork requesting an adversary proceeding. During that separate legal case, the filer must convince the courts that repaying the student loans could lead to undue financial hardship.
They must show that they have made a good faith effort to pay previously. They must also show that they cannot reasonably maintain a minimal standard of living while also making the required student loan payments and that their circumstances are unlikely to change.
Bankruptcy could still be helpful
Even in scenarios where people do not qualify for the discharge of their student loans, filing for personal bankruptcy could help them take control of their finances. The discharge that eliminates repayment obligations can eliminate other debts, such as credit card balances.
Regardless of the type of bankruptcy pursued, student loan borrowers can pay off what they owe more quickly after they discharge other debts. They can rework their budget to allocate more of their income to their students to pay down what they owe as quickly as possible.
In some cases, it may be possible to negotiate more favorable terms during a Chapter 13 bankruptcy. Student loans are often part of the multi-year repayment plan in Chapter 13 cases. Private lenders, in particular, may be willing to work with borrowers who have fallen behind.
Having help when exploring personal bankruptcy as a solution for overwhelming debt can help people explore their options. Borrowers hoping to eliminate their student loans often need assistance with the complex process required to discharge these loans, and that’s okay.
