Student loans are generally considered “non-dischargeable.” Although it has happened in few instances filing for Bankruptcy will probably not eliminate your student loans. And, due to recent changes in the law, the extremely rare instances where Bankruptcy discharges that have been granted on student loans will likely become extinct. The new bankruptcy law now gives education loans from private-sector lenders such as Sallie Mae the same protection as Federally guaranteed student loans issued directly by the Department of Education. This protection applies only to debts incurred solely for the purpose of paying higher-education expenses for you, your spouse or your dependents. Federally guaranteed students loans go to include Stafford student loans as well as loans for parents, Perkins loans, and others which may include older types of loans. If you have guaranteed student loans that have been consolidated, they will remain federally guaranteed and will be almost impossible to discharge in a bankruptcy proceeding.
Student loans can only be discharged if:
- Repayment would cause undue hardship.
You have a case of “undue hardship” only if you have made a good-faith effort to repay your debt, but, in your current financial state (which is likely to continue for most of the repayment period), you cannot repay the loan and maintain a minimal standard of living. Courts have rarely granted hardship discharges for student loans.
In the rare instance that you may have a case of “undue hardship” and would consider making an attempt to obtain a discharge it will be necessary to file an action in the Bankruptcy Court which is separate from your petition. You will have to provide clear and convincing evidence of “undue hardship” as conditions precedent have been so required by the Bankruptcy Courts. The three elements required to prove up dischargeability of a student loan are as follows:
- That you cannot maintain, based on current income and expenses, a “minimal” living standard of living for yourself and your dependents if forced to repay the loans;
- That additional circumstances exist indicating that this state of financial affairs is likely to continue indefinitely or for a significant portion of the repayment period of the student loans, (which usually requires that your case is without hope or even slight possibility of change ever) and;
- That you have made a good faith effort to repay the student loans, for example, through past payments over several years, consistent payments of any amount etc…, Making payments is not however a requirement is you have never had the monies to pay the student loans. Forbearances can sometimes suffice.
Even if you believe you may have a case of “undue hardship” it is up to the Bankruptcy Courts to decide and they have rarely granted discharges for student loans. Considering that the Department of Education, the Federally guaranteed commercial lenders, and the non-profit lenders offer deferments, forbearance agreements, and other alternatives to address hardships. It makes it extremely difficult to prove up “undue hardship” let alone actually discharge student loans in bankruptcy.
If you are falling behind on your student loans and are concerned that the Department of Education will keep your tax refund, possibly garnish your wages or even sue you then you should examine all of your options. If bankruptcy is not an option to address your student loans then consider other alternatives which include deferment of loans, forbearance agreements, renegotiating or refinancing, and possible consolidation of you student loans. Whatever you do, take action and try to address the situation before further damage is done to your financial condition. If you’re uncertain as to what agency is holding your student loan check out http://www.nslds.ed.gov/nslds_SA/ as this web site can tell you: what agency, what the balance is, what your options are, etc.
If you have questions regarding Bankruptcy and Student loans please contact The Law Offices of R.J.Atkinson,LLC at 800-436-9056 for a free initial consultation to discuss your legal options in Bankruptcy.