Can You Include Your Student Loans In Bankruptcy?
It has been a rough few years and many people have fallen into bankruptcy. This raises the issue of can you include your student loans in bankruptcy?
The old days were filled with nasty institutions we look back upon and cringe. One was debtor’s prison where you literally went to prison for not paying your debts. The prisons would certainly be packed these days! Fortunately, the concept of sitting in prison for debt penance is long gone. Now we have bankruptcy.
Bankruptcy is the white board of finance. You can start over completely by wiping your debts and also losing all your assets. Alternatively, you can reorganize your finances by filing Chapter 11. When you do this, a plan is developed to pay back part of the debt you owe and you usually don’t lose excessive assets.
Student loans are hallowed ground when it comes to bankruptcy. Prior to 1998, you were allowed to discharge them in bankruptcy court if you had paid on them for 7 years straight. That is no longer the case. The law has changed and now you must face a new standard that is much tougher.
Can you include student loans in bankruptcy? You cannot in the vast majority of cases. There is one exception and it is an important one. If you can show that paying the loans would create an undue hardship on you and your family, the bankruptcy judge may choose to discharge the loans. Alternatively, the judge may also decide to cut the total owed on the loans by a certain percentage.
Showing undue hardship is very difficult. You pretty much have to be destitute. If you are considering filing bankruptcy, you should be using an attorney to do so. They can help position you before filing bankruptcy so that you can have the best chance of getting your loans reduced or eliminated.
