A common question young people have after finishing school is, can I discharge my student loans in bankruptcy? Unfortunately, for most people, the answer is no. Unlike credit card debt, student loans do not automatically qualify for a Chapter 7 discharge. Instead, a debtor will have to prove three specific elements in order to receive a discharge. A St. Charles bankruptcy lawyer can discuss your situation to find the right solution for your student loan problems. Even if Chapter 7 isn’t an option, a debtor can benefit from reorganization in Chapter 13.
Before considering bankruptcy, if a student is having difficulty with student loans, they should contact a lender directly to learn their options. There are options available to help students manage their debt as they seek gainful employment. And while the White House has proposed making bankruptcy easier, nothing is final, so a borrower will have to rely on options already in place. For instance, a student can take advantage of a forbearance that can give them up to a year without payment. While interest will still accrue during this time, a debtor will not be responsible for making payments. This can be a great help for someone as they look for work.
Another option might be Income Based Repayment. This option allows students to repay a portion of their income relative to their wages. This ensures that a person will have the money they need to live while allowing them to repay a portion of their loan. If a person works in a non-profit sector, this might be a great option because after 120 payments, the remaining debt is discharged tax free and at no expense to their credit.
If a person wishes to discharge student loans, they will have to prove all of the following:
- The loans represent an undue hardship
- They have made a good faith effort to repay the loans
- The financial situation is unlikely to improve during the repayment period
This last factor is the most difficult to overcome. Because a degree means greater earnings for a person, the court views it as likely that their financial situation will ultimately improve. While this can be difficult to prove, it is not impossible. A St. Charles bankruptcy attorney can discuss your situation in greater detail to determine if you might qualify for Chapter 7.
At Westbrook Law Group, we can find an effective solution for your student loan problems. Even if Chapter 7 is not available, a person can take advantage of Chapter 13 and get their life back on track. We can discuss your options and help you find the best route for you and your family. For a free consultation with a St. Charles bankruptcy lawyer, contact Westbrook Law Group right away.