The common consensus with federal student loan discharge through bankruptcy is that it’s basically impossible to do. Federal student loans are with you forever, regardless of your financial situation.
Well, this isn’t EXACTLY the case. While it is possible to have your loans discharged through bankruptcy, it’s extremely unlikely. If you’re one of the people wondering about the possibility of loan discharge through bankruptcy, it can be a long, expensive, and usually futile task to attempt. Let me explain:
If you want to have your loans discharged due to bankruptcy, you’ll need to file a lawsuit, separate from bankruptcy, with the end goal to prove that you’re experiencing a severe financial hardship (“undue hardship”) – and prove that even with all of your other debts essentially wiped out, you still would not be able to afford your student loan payments.
There is no set-in-stone standard for this. No line is drawn in the sand, where once crossed, you’ll be relieved of your student loan debt. Undue Hardship isn’t defined by law. Instead, judges will make this decision, based on your evidence, on a case-by-case basis. Since there are so many moving pieces, you’re basically putting your faith in the gray.
That being said, student loan servicers will tell borrowers that there is absolutely no way to absolve your student loan debt through bankruptcy. This is not true! There is a way to do this, but you need to look at your options.
What types of loans do you have?
This includes home loans, private student loans, or personal loans, in addition to your federal loans. If the only type of loans you have are federal student loans, then applying for loan discharge isn’t the best move.
Check for other loan discharge options
There are many different programs available to borrowers involving loan discharge. The most noteworthy being the Public Service Loan Forgiveness (PSLF) program, which discharges ALL qualified loans, including balance and interest, after 10 years, as long as you work full time in the public service sector, and doesn’t tax the savings as income. Instead of investing in an expensive and risky lawsuit in addition to your bankruptcy filing, do some research on other programs you may qualify for, or speak to a professional about it.
Bankruptcy may be the solution to your unaffordable loan payments
The judge will look closely at your projected income post-bankruptcy. When your other debts are wiped clean through the bankruptcy, you’ll inevitably have more discretionary income to pay your student loan balance. This is the most likely scenario as to why most of these cases lose in court.
Income and assets
Depending on the type of income you have will greatly influence whether or not you’ll qualify for loan discharge through bankruptcy. In most types of income, the government can garnish wages, levy your taxes, and take legal measures to ensure they’re receiving payment. If you’re receiving social security retirement checks, however, then the government can’t come after those funds. A judge will see this as income and will most likely refuse to discharge your loans.
Ending note: Examine all options and speak to a professional for help
While student loan discharge through bankruptcy IS possible, it can be a lengthy, expensive process which has historically shown to only work on the rarest of occasions. My advice: speak to a professional for help on what repayment options might be available to you. You might be pleasantly surprised that a solution has been sitting there in front of you the whole time.
Make sure to always check back with us at Ameritech Financial for more and up to date information on student loans.
Options are available to help
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