Student Loans And Bankruptcy 101 -- What You Need To Know If Your Student Loans Are Sinking You Financially
Attending college was a dream come true, but unfortunately your student loans have turned into a nightmare. Your salary isn't even covering your basic expenses, let alone your large student loans. You've heard that you cannot discharge your student loans in a bankruptcy, but at this point, you feel that filing either Chapter 7 or Chapter 13 is your only hope that you can recover financially.
Student Loans and Bankruptcy
There is a common belief that student loans cannot be discharged in a bankruptcy. But it actually can be done. In fact, according to the Huffington Post, four out of ten people who have tried to have their student loans discharged actually succeeded in doing so. And even if you can't get your loans discharged, you may be able to hire a bankruptcy attorney to help you reorganize your debt into more manageable payments with a Chapter 13 filing.
Bankruptcy -- Chapter 7 and Chapter 13 There are two different chapters of personal bankruptcy that you can file for, Chapter 13 and Chapter 7. It is important to understand the difference between the two so you can choose the filing that is best for your personal situation. The following is a brief description of the two Chapters:
With a Chapter 7 filing:
- You will ask the court to discharge most of your debts that you owe to others.
- The bankruptcy trustee can take your property and assets and sell them, with the proceeds going to those you owe money to. Certain property that you own, such as life insurance policies and any retirement plans you have, may be protected and so will not be seized. In some Chapter 7 cases, you may even be allowed to keep your home.
- The bankruptcy will stay on your credit history for ten years, according to Boston.com.
With a Chapter 13 filing:
- You will not be forced to sell off your property. That is why people who don't want to chance losing their homes often select Chapter 13.
- You will file a repayment plan with the court, which can be very stringent and will leave you very little money to spend on yourself or your family.
- Those you owe should get their money back. That is why this route is often chosen by those who feel morally responsible to pay their debts.
- The bankruptcy will stay on your credit history for seven years, according to Boston.com.
So What Should You Do? Before you meet with a bankruptcy attorney, decide which type of bankruptcy filing is right for your particular situation. You should also discuss with your attorney the possibility of having your student loans discharged or reorganized. To have your loans discharged, you must prove that the repayment of your student loans will place an undue hardship on you or your dependents. The following are just two reasons that could possibly qualify you as having an undue hardship:
- You have a medical hardship that makes it difficult for you to be gainfully employed, which means that it is highly unlikely that you will ever be able to repay your loans.
- You would not be able to maintain a "minimal" standard of living for you and your family if you were forced to pay off your student loans.
Finally Deciding to file for bankruptcy is not something to be taken lightly as it can have serious impacts on your future credit history. But it may also be the only way you can recover from a desperate financial situation. While it is a tough choice to make, it may be the only solution that you have. Talk to a bankruptcy attorney from a firm like Morrison & Murff to decide whether it's the best solution for you.