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Student loans and bankruptcy

Student loan debt burdens many people in Tennessee and across the United States. This debt often makes it difficult for people to gain a solid financial footing as much of their income is used to repay student loans. Many people struggling with student loan debt may want to turn to bankruptcy to get a fresh financial start. While changes have been proposed to the current bankruptcy code, as was explained in a recent article on this blog, the current law makes discharging student loans in bankruptcy difficult.

According to U.S. Department of Education, unlike other types of debt, student loans are not automatically discharged in a bankruptcy. This means that additional steps must be taken in order for a person to try to get debt relief filing for bankruptcy. This applies in both Chapter 7 and Chapter 13 bankruptcy actions.

Under current law, people can only get a discharge if the student loans create an undue hardship on the person and the person's dependents. To prove that an undue hardship exists, people must prove three elements. If any one element is not fulfilled, then the person will not be eligible for a discharge of the person's student loans.

The first criteria that must be met is that people must not be able to keep up a minimal standard of living if they were forced to pay back their student loans. The second element that must be is that the hardship created by the student loan repayment must be expected to last for a large portion of the student loan repayment period. Finally, to receive a discharge, people must show that they made a good-faith effort to repay the student loans before asking for discharge. Generally, a good-faith effort required at least five years of repayment.

If people can meet this standard, student loans can be discharged. If discharged, people will no longer be subject to collection efforts and will not need to pay the remaining balance. An attorney can help people decide if they are eligible for debt relief of student loans and other types of overwhelming debt in a personal bankruptcy.

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

Toll Free: 888-376-0282
Phone: 423-933-1606
Fax: 423-877-0363
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