What Will Happen to My Student Loans in Bankruptcy?

Many Americans are struggling to manage massive student loan debt. A recent study revealed $1.73 TRILLION in student loan debt across the United States.

It’s a shocking number, and it’s been a common debate among politicians in recent years. While it’s always possible the government wipes out some portion of the student loan debt in this country, it’s more likely you will have to find ways to handle it yourself.

We get asked a lot about if bankruptcy can solve student loan debt. The answer is it’s possible, but it’s rare and depends on your situation.

Temporary relief

Regardless of whether you file for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, you’ll at least get temporary relief from your student loan payments. This works because each court will issue a temporary stay on your debts while the process plays out and a plan for your financial future is created. In Chapter 7 cases, the stay generally lasts between three and five months. In Chapter 13 cases, the stay can last anywhere from three to five years.

This temporary relief could help you catch up on past due bills, but you should never rely on this action. Creditors like student loan companies can file a request to have the stay lifted. If this happens, your student loan payments will resume immediately.

Permanent relief

The road to getting permanent relief from student loans through bankruptcy is much more difficult. Student loans used to be discharged through bankruptcy like any other debt until several changes in bankruptcy law. The most recent change was in 2005 when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act which made it so no student loans could be discharged in bankruptcy unless the borrower proves “undue hardship.”

Those last two words are the key here. In order to prove “undue hardship,” you will need to convince the court of the following:

  • Repaying the loan prevents you from maintaining a basic standard of living
  • This situation is likely to continue throughout most or all of the repayment term
  • You’ve made a good-faith attempt to make payments as agreed to

You might think entering bankruptcy would be proof enough your financial situation has become dire enough, but the courts rarely accept these requests and often leave people not only with a bankruptcy filing on their credit report but a mountain of student loan debt, as well. Those with permanent physical or mental disabilities are the most likely to have bankruptcy courts forgive their student loan debts.

Don’t give up

This can all feel overwhelming and like you’ll never see the end of your student loan payments, but it’s important to know you have options. At Hedtke Law Group, we can help you sort through your financial situation and walk you through the bankruptcy process. Contact us to get a fresh start today!