Student loans: can you declare bankruptcy for loans?
Bankruptcy can be used to eliminate student loans. The bankruptcy court will decide if you meet the rigorous criteria that courts generally adopt to assess whether your student loans are eligible for discharge. However, that doesn’t mean you have to give up.
You must demonstrate that loan repayment places you and your dependents under “undue hardship” in order to actually have private and federal student loans fired bankrupt.
This is a higher bar than bankruptcy filers must set to get discharge from overdue credit card debt, personal loans or utility bills. However, if you have a case for it, it’s often good to make an effort to demonstrate that you meet these requirements.
If your loan repayments are unmanageable, there are alternatives to bankruptcy that you should investigate first, as filing for bankruptcy has negative effects on your credit and financial future.
Here are some ways bankruptcy, if it’s the best option for you, can eliminate or significantly reduce student loan debt.
Types of bankruptcy filing for student loans
Chapter 7 bankruptcy is the most common variety, and Chapter 13 bankruptcy. If you file successfully in either situation, you will not be required to repay certain debts, and wage garnishment and other debt collection actions will cease.
People who file for Chapter 13 Bankruptcy and earning a stable income receive a three to five year payment plan to pay off their debts. After that, the remaining obligation is discharged.
There is no payment schedule and a release under Chapter 7 Bankruptcy, but your eligible assets will be liquidated to meet your obligations. Any unpaid debt will then be cancelled.
Bankruptcy will appear on your credit report for 10 years if you file a claim Chapter 7 and 7 years if you apply Chapter 13 in both situations.
Also, if you don’t choose Chapter 13, you risk losing assets that you used as collateral for an unpaid secured debt, such as a mortgage, that is protected by a lien or other legal claim.