Bankruptcy And Student Loans Do Not Always Go Together

Today, the person claiming Chapter 7 bankruptcy has to show that an undue financial hardship will result if the loans are not discharged. As in many cases with bankruptcy and student loans make up a large portion of the individual’s debt, a portion of the loan may be discharged by the judge, but most of the loan will remain a legal debt. In other cases in bankruptcy and student loans are reviewed, if the loans are found to have been sold repeatedly to other lenders and with changing interest rates it is difficult to determine an exact balance, some or all of the loan may be discharged.

Under the provisions of Chapter 13 bankruptcy, a debtor can arrange to have all of their unsecured and secured debt become part of a repayment plan through a court trustee. In these cases of bankruptcy and student loans are included, the person must meet specific criteria, for example showing they have sufficient income to make the monthly payments determined by the court to pay off the total debt within five years.

Proving Debtor Has Ability To Pay

However, if their income does allow for expenses plus the payment to the court, Chapter 13 will not be allowed. Their other option may be to file Chapter 13 bankruptcy to eliminate most of their other debts, freeing up money for them to make payments on student loans. For many filing bankruptcy and student loans payments afterwards will take up a large portion of their income and after a period of time, they may be able to secure a loan with lower interest rates and lower payments to pay off their student loans.