Student Loans In Bankruptcy–A Thorny Problem

20 May Student Loans In Bankruptcy–A Thorny Problem

Student loans are not dischargeable in bankruptcy-almost everyone who has student loans knows that is the case.  So why consult a bankruptcy lawyer when you have student loans?  There are several reasons to check your particular situation with a bankruptcy lawyer.

Student loan debt can be a real budget-buster, but sometimes a bankruptcy, either Chapter 7 or Chapter 13, can eliminate or reduce other debt, freeing up income to make the student loan payments more affordable.  Sometimes a Chapter 13 bankruptcy can pay some, if not all, of the student loan debt.  If a Chapter 13 payment plan does not pay the student loans in full, it may be possible to propose a plan that will pay enough to reduce principal and make the debt more affordable.  If you have a loan that will be forgiven if, for example, you teach in an under-served area for a few years, but none of those schools are hiring at present, a Chapter 13 may help you deal with the payments until you have the opportunity to take advantage of debt forgiveness programs.

There are also provisions which allow a bankruptcy court to determine that the student loan debt creates an unde hardship.  Although the courts have interpreted that provisions very narrowly, and it is very difficult to litigate for various reasons, you may be a position to take advantage of those provisions.  Only a bankruptcy attorney can tell you for sure.

Over the long haul, this is an area of the law that needs legislative intervention.  As it is currently interpreted, the law can operate to essentially enslave some borrowers, who have no reasonable chance of building savings, buying a home, or providing for their families because of their student loan debt, and whose earning potential has suffered drastically in the present economy.  But until Congress acts to relieve those debtors, it may be a good idea to talk with an experienced bankruptcy lawyer to determine what can be done in the meantime.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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