Student loans are considered non-dischargeable in bankruptcy unless you can establish undue hardship. Federally guaranteed and private school loans are treated the same in bankruptcy and for the most part are non-dischargeable. Discharging student loans requires that you establish undue hardship to you and your dependents, which is rarely met. Although it is difficult to discharge school loans in either a Chapter 7 and Chapter 13 bankruptcy it is not impossible. The undue hardship standard generally requires that you show that you cannot maintain a minimum standard of living and repay your educational loans, that the conditions that prevent you from having to repay the loan are unlikely to change or improve over a large part of the loan repayment period and that you have made a good faith effort to repay the loan. This is a difficult standard to establish and will only generally be met by someone who has a permanent disability that prevents them from working or earning income sufficient to sustain themselves and their dependents. Although discharging educational loans is very difficult in bankruptcy, there are several options available for people who are having difficulty repaying student loans.
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First, if you have other unsecured debt such as credit card debt, medical bills, and repossessions then eliminating these debts in a Chapter 7 bankruptcy can assist you in managing the repayment of your educational loans.
Another option to consider is filing for Chapter 13 and consolidating all of your unsecured debt. Although Chapter 13 will not eliminate your educational loans it will consolidate your unsecured debt (including student loans). Chapter 13 allows you to make a monthly payment over a 36 month or 60 month period. In many instances you can significantly reduce the amount you owe on your educational loans through a Chapter 13 bankruptcy.
Options Outside of Bankruptcy - There are several options that you can consider outside of bankruptcy if you need assistance or help in repaying or canceling your educational loans.
If you are current on your educational loans and are experiencing a temporary hardship then you can request a deferral on your school loans. This allows you to temporarily suspend your student loan payments for a specific period. Deferral of student loans are generally granted if you are current on your student loans and are experiencing a hardship such as unemployment, disability, or other economic hardship.
You also may be able to lower your monthly payment through consolidating your educational loans. Consolidating student loans allows you to bring together your school loans into one loan and generally at a lower interest rate than what was previously paid.
In limited circumstances you may be able to cancel your federal student loans if you can establish certain problems with your school such as the school closing under specific circumstances or false certification. Forgiveness of educational loans for people who work in "public service" jobs and meet specific requirements of the loan forgiveness program is also available.
Although it is very difficult to remove a school loan through bankruptcy, there are several options both within bankruptcy and outside of bankruptcy that can help you in managing and repaying your educational loans. If you need further information on bankruptcy and student loans you can contact our law office at:
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