Bankruptcy and Student Loans: Challenges and Considerations

When you are struggling to keep up with bills and keep digging yourself further and further into debt, you need to consider your options. It does not make sense to keep making the minimum payments and hoping things will get better. For many people, the answer to their financial problems is bankruptcy.

Bankruptcy can help eliminate various unsecured debts, including credit card bills, medical bills, personal loans, business debts, and utility bills. If you have student loans, like so many Americans, you may wonder if bankruptcy will help eliminate that debt.

It is possible, but it is not easy. Student loan debt is difficult to discharge. It is possible, though, but it requires additional steps and there are no guarantees.

First, you will need to file for Chapter 7 or Chapter 13 bankruptcy. Then you will need to file an adversary proceeding, which determines whether your debt should be discharged.

In the adversary proceeding, you will need to prove an undue hardship. Some examples include:

• You cannot maintain a minimal standard of living for yourself and any dependents
• You are on public assistance or dependent on a family member.
• You have a debilitating mental or physical illness or permanent injury.
• You have a child with a serious illness who requires round-the-clock care.
• Your income was reduced in a divorce.
• Disability checks are your only source of income.
• You support a spouse who is permanently injured or disabled.

Keep in mind that the bankruptcy court will scrutinize your expenses to see if you are truly facing financial hardship. If your only debt is a student loan, your chances of discharge are low.

Alternatives to Bankruptcy

If your student loan debt cannot be discharged in bankruptcy, here are some other options:

• Deferment or forbearance. Deferment and forbearance allow you to pause your monthly payments for a certain period of time based on your situation. However, you will need to make those payments later, and interest still accrues.
• Income-driven repayment plan. If you have federal loans, you may be able to qualify for up to four different income-driven repayment plans. These plans base your monthly payment on a percentage of your discretionary income and also extend your repayment term to up to 25 years.
• Student loan repayment assistance. There are some programs and employers that offer student loan repayment assistance. In some cases, you may be able to have your loans forgiven altogether. Look for programs based on your career field.

Contact a West Palm Beach Bankruptcy Attorney Today

Student loans are difficult to discharge in bankruptcy. It is possible to do so, but there are extra steps involved. Is it worth it?

Brian K. McMahon, P.A. is a skilled West Palm Beach bankruptcy attorney who can assess your situation and help you understand your options. Bankruptcy may not be the answer. To schedule a consultation, fill out the online form or call (561) 658-1789. We serve the West Palm Beach, Boca Raton, Port St. Lucie, and South Florida areas.