Can You File For Bankruptcy On Student Loans?

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Can You File For Bankruptcy On Student Loans

If you are trying to get your debt under control, you might wonder whether you can file for bankruptcy on student loans. The short answer is yes, if you are overwhelmed by student loans, you may be able to erase your debt by filing for bankruptcy. 

Discharging student loans through bankruptcy can be difficult, but it is possible. Federal student loans cannot be discharged through bankruptcy unless you prove that repayment causes undue hardship. To make a case for undue hardship, you must demonstrate that paying back your loan keeps you from maintaining a minimal standard of living and that you don’t expect your financial situation to change soon.

Private student loans are harder to get discharged. Qualified educational loans may not be discharged unless you demonstrate undue hardship, and they require filing an additional adversary proceeding with the bankruptcy court. 

Advantages and disadvantages of filing bankruptcy on student loans

A significant benefit of filing for bankruptcy for a student loan is partial or full elimination of what you owe. Other times, you may be able to lower how much you pay each month during the bankruptcy’s repayment period.

Filing bankruptcy on student loans can have some significant drawbacks. Bankruptcy remains on your credit report for up to 10 years. This negative mark on your credit history can make it harder to borrow money in the future. Lenders may see you as risky and charge a higher interest rate. 

How to file bankruptcy on student loans

You must take some vital steps when pursuing a bankruptcy filing. 

1. Review your student loans

The types of loans and your financial situation may influence how you approach filing bankruptcy. 

Federal Loans: You must prove undue hardship to discharge them in bankruptcy. Falling significantly behind in your payments could bolster your case. You have to file an adversary proceeding but the process is relatively streamlined.

Private student loans: In addition to proving undue hardship, you may have to file an additional adversary proceeding that may require a full trial.

2. Consider hiring a lawyer

Seeking legal help is crucial in determining whether filing for bankruptcy is a good option for your financial situation. An experienced bankruptcy lawyer can guide you through the complexities of discharging student loan debt.

Once you have formally filed for bankruptcy, the next step is to file an adversary procedure for your student loans. The adversary proceeding states that your student loan is causing undue hardship. A bankruptcy lawyer helps you navigate the process of proving undue hardship. 

3. Decide which type of bankruptcy to file

You must file a student loan Chapter 7 bankruptcy to discharge your debt completely. While you get a fresh start, any nonexempt assets owned are sold to pay off your debt. A nonexempt asset is something you own but don’t need to live or work. A valuable coin collection or a home that isn’t your primary residence can be sold to pay down or pay off your debt.

To qualify for a student loan Chapter 7 bankruptcy, you must prove that you do not have the means to pay your debt. 

But if you make too much money or don’t want to sell your assets, you may seek protection by filing a Chapter 13 bankruptcy. Under Chapter 13, a three- to five-year repayment plan is worked out with your creditors. 

Remember that you remain responsible for paying all non-bankruptcy bills, like your home mortgage or car payment, while in a student loan Chapter 13 plan. Once you complete your repayment plan, you must continue paying your student loan.

4. Receive a decision

The court may partially or fully discharge your student loan debts if they cause undue hardship, though this is a high standard to meet. Most of the time, the court would place you on a repayment plan. 

Alternatives to filing bankruptcy on student loans

Bankruptcy isn’t the only option when drowning in student loan debt. You may be able to avoid bankruptcy on student loans with these alternatives:

1. Income-driven repayment plans

A benefit of taking out a federal student loan is the consumer protection it offers. Federal student loans offer an income-driven repayment plan, which limits your monthly payments to a percentage of your income and can provide forgiveness on your remaining balance after 20 or 25 years.

When you struggle to stay on top of your student loan payments, an income-driven repayment plan may help ease your monthly financial burden. Just remember, your payments go up as your income rises. 

2. Refinancing

Depending on your income and credit score, you may be able to refinance your student loan at a lower rate. You can refinance both federal and private student loans. Your monthly payment could drop, and you could pay less student loan interest. If you refinance your student loan for longer, your payments can drop even more.

You may be able to refinance your student loan with your current lender. If you can find a better rate elsewhere, you could switch to a different lender when refinancing. 

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3. Loan consolidation

Consolidating multiple student loans into one might get you a lower interest rate, which can lower your monthly payment. When you extend the length of your loan, your monthly payment could drop even more. But paying your loan back over a longer time costs you more in interest. Whether you have federal or private student loans, speak to your lender about loan consolidation options. 

4. Loan forgiveness

The federal government offers a few loan-forgiveness programs. If you are under an income-driven repayment (IDR) plan, you could qualify for loan forgiveness once you have satisfied the terms of your agreement. Most IDR plans have repayment terms from 20 to 25 years. Once you have made all payments required under the agreement, any remaining principal and interest are forgiven.

You could also be eligible for loan forgiveness if you work in the public sector. The Public Service Loan Forgiveness (PSLF) program forgives your federal student loans once you make 120 eligible payments while working for a government agency, public school, or qualifying nonprofit. 

Is student loan bankruptcy right for me?

Filing for bankruptcy can be a lifesaver if you find yourself drowning in debt, but it is not a decision to take lightly. Bankruptcy affects your credit score and can stay on your report for up to 10 years. Lenders may deny your application for a mortgage or car loan later. Before choosing bankruptcy for your student loans, it’s recommended to consider the other options available.


What happens to student loans in Chapter 13?

In a Chapter 13 bankruptcy case, student loan payments may be delayed or reduced during repayment. Because student loans are considered nonpriority unsecured debt, a portion of the monthly payment you make toward your unsecured debt may go toward your loan. Once your bankruptcy ends, you must keep making student loan payments.

Can you claim bankruptcy on student loans?

If you plan to file bankruptcy, you may include your student loans with other debt you want discharged.

Are private student loans discharged in bankruptcy?

Typically, private student loans are difficult to discharge in bankruptcy. But if you can prove repayment causes you undue hardship, you may be able to discharge private student loans from bankruptcy.

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