Bankruptcy, Debt and Student Loans
A student’s debt has reached unprecedented levels and many students who have recently finished college are suffering the effects. This is difficult because of an economy that has not prospered, which is why most students have to take jobs where they are not paid enough to cover their debts or debts are due before they can take some job
Sometimes, these students declare bankruptcy to get rid of other debts, such as a business credit, a loan to acquire a vehicle or their credit card account. If you do this, it is important to understand that student debt is not taken into account during bankruptcy proceedings.
It is not known by the name of an exempt debt, such as the debt of a credit card. This means that you can go through the entire process, either under Chapter 7, Chapter 13 or another type of bankruptcy, and your student loan will remain, even if other debts have been eliminated. You will have to pay these loans anyway.
Exceptions to the rule
As in almost everything, there are exceptions to the rule. It is technically possible to obtain exemption from your student loans, although this is very rare.
To do this, you must go to the bankruptcy court and make a presentation for a “contentious proceeding.” The purpose of this presentation is to show that you are in a situation in which you consider that it will be impossible for you to repay your loans, defining them as “excessive difficulties”. In short, it is only to demonstrate that extreme situations beyond your control have made it impossible for you to return the student loans you requested, so you are asking the court to consider them together with the rest of your debt when you file for bankruptcy.
What must be shown to exempt the loans
However, some people who file a contentious procedure are denied the exemption; however, there are certain issues that, if proven, can make you exempt from paying your loans. The three main questions that the court needs to see are:
- That you have tried to repay your loans, making the effort that was necessary.
- That assumes that you will have financial problems in the foreseeable future, which will not disappear during the time allowed to repay the loan.
- That your family will be seriously harmed by the loans because returning them means you will not have enough money to maintain an acceptable standard of living.
In doing so, remember that the court will consider the minimum standard of living that you and your family need to live safely and healthily. For example, having proper clothing and food is a minimum requirement, but having top brand clothes and going on vacation every year are not. If the court determines that you are financially limited by aspects that you simply want, you will be denied. However, the goal is not to expose you and your family to poverty due to student debt.
Other issues that could be taken into account are medical problems, their work situation and similar aspects.
Follow the steps that correspond
Something curious about this is that the litigation process and the declaration of bankruptcy are different processes and there are two different legal paths that you must follow, which will then be linked if the first one is approved. This can be very complicated, so it is important to make sure you understand exactly what you will be asked for; missing a small part of the process could cause your order to be rejected.
As you can see, most bankruptcy cases do not significantly affect student loan debt. However, this does not mean that it is impossible to cancel the loans. It can be a long process, but it is what has happened in the majority of cases. In order to move forward, make sure you know precisely what you should ask the court, the order in which it should be done, and how best to prove that your loans should be exempted.
Speak Today with a Lawyer Qualified in Bankruptcy
This article aims to be useful and informative. But legal issues can be complicated and stressful. A bankrupt Lawyer can meet your particular legal needs, explain the law and represent you in court. Take the first step now and contact a qualified Lawyer bankrupt near you to discuss your specific legal situation.