Friday, January 20, 2012

What can you do with student loans when filing bankruptcy?

Generally student loans are not dischargeable in bankruptcy. However, there are some exceptions. If you can show "undue hardship" you can get them discharged in the bankruptcy. Most courts follow the test from the NY Brunner case (831 F.2d 395). Brunner is a three-part test where you must prove:

1. That the debtor cannot both repay the student loan and maintain a minimal standard of living;
2. That this situation is likely to persist for a significant portion of the repayment period of the student loans; and
3. That the debtor has made good faith efforts to repay the loans.

It sounds difficult to meet this standard, but several people who you wouldn't think met that standard did. Read about them here. Generally, if you are having difficulty keeping well-paying employment, are sick, or have huge financial responsibilities, you might have a shot. Read more here.

A Chapter 13 bankruptcy, which reorganizes your debt, will reduce your loan payments to something manageable while you are in the 3-5 year repayment program. After you finish it, you will probably need to resume your regular loan payments. However, depending on your situation, there is a chance the lender might reduce or forgive the loans.

Never get behind on your student loan payments, because the lenders are not very forgiving. Always call and try to get a forbearance or deferral. Student loan lenders have become really accommodating in recent years in regards to this. As long as you are in one of those two statuses, you'll be ok. However interest accrues rapidly while you are not paying.

After 25 years of paying federal student loans, if you still have not paid them off they will be forgiven. However, that means 300 payments; if you have have forbeared or deferred any of that time it will stretch it out.

There are several loan forgiveness programs available, such as working for a nonprofit or government. Check them out here.

The Alexander Bankruptcy Law Firm provides low low cost Chapter 7 and 13 personal bankruptcies. $995 Chapter 7 or $2500 Chapter 13 bankruptcies plus court filing fee. Free consultation with a compassionate attorney who will handle your case personally. Call 24/7, available to meet with you around your schedule. 602-910-6812. Conveniently located in Central Phoenix along the Camelback corridor.

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