The Heavy Consequences of Bankruptcy with Student Loans

e Heavy Consequences of Bankruptcy with Student Loans
If you have unresolved student loans during a bankruptcy proceeding, you may be able to have the debt discharged if you meet certain criteria. However, discharge is very rarely granted. Instead of counting on this option, consider alternatives to repay the debt prior to entering bankruptcy. 
Student Loan Forgiveness
There are several options that will provide for forgiveness on federal student debts. These programs only apply to direct loans given by the U.S. Department of Education. The primary forgiveness program is offered to those borrowers who enter a career in public service. They must first pay off about year years of loan payments, but then they can have thier remaining interest and prinicipal forgiven. You may qualify if you are in the military, Peace Corps or teach in a low income school. Federal student loans are also forgiven if the borrower passes away or becomes permanently disabled. 
Student Debt Discharge in Bankruptcy
If you must enter bankruptcy with active student debts, you may qualify for a discharge if the following specific criteria apply to you:
You made an effort to repay the debts prior to declaring bankruptcy. This is usually shown by consistent loan repayment in the past.
You experienced a loss of income that will not reasonably permit you to maintain a reasonable standard of living if you are forced to repay the debts.
The income change will continue for a significant or indefinite length of time.
Bankruptcy Liquidation
You may not qualify for forgiveness or discharge. In this case, you have two primary ways to resolve the outstanding student debt through filing bankruptcy. The first is filing Chapter 7 Bankruptcy, which involves a liquidation of your assets. This option is used for borrowers who do not have an income to continue repaying the loans and instead must gain an income through selling possessions. All assets may be subject to sale by the court, and you will not have control over when your assets are seized or in what order your debts are repaid. Student debts are senior debts, particularly if they are federal loan debts, so they will be repaid at the highest priority. 
Bankruptcy Payment Structuring
You may have a moderate income that could permit you to repay your student debts if they were significantly restructured. For example, some of the finance charges could be removed, the terms could be lengthened and the monthly payments could be shortened. If you believe you can make payments with these changes, you may be a candidate for a Chapter 13 Bankruptcy filing, which is a restructuring of debts. You will have the chance to submit a payment plan you feel would work for your situation to the court. The court allows your lenders to respond to this plan before ultimately deciding the best option to continue with loan repayment.

If you have unresolved student loans during a bankruptcy proceeding, you may be able to have the debt discharged under specific criteria. However, discharge is very rarely granted. Instead of counting on this option, consider alternatives to repay the debt prior to entering bankruptcy. If you cannot pay off the debt by other means and are denied discharge, you may need to repay the debts according to the order of the bankruptcy court.

Student Loan Forgiveness

There are several options that will provide for forgiveness on federal student debts. These programs only apply to direct loans given by the U.S. Department of Education. The primary forgiveness program is offered to those borrowers who enter a career in public service. They must first pay off about year years of loan payments, but then they can have thier remaining interest and prinicipal forgiven. You may qualify if you are in the military, Peace Corps or teach in a low income school. Federal student loans are also forgiven if the borrower passes away or becomes permanently disabled. 

Student Debt Discharge in Bankruptcy

If you must enter bankruptcy with active student debts, you may qualify for a discharge if the following specific criteria apply to you:

  1. You made an effort to repay the debts prior to declaring bankruptcy. This is usually shown by consistent loan repayment in the past.
  2. You experienced a loss of income that will not reasonably permit you to maintain a reasonable standard of living if you are forced to repay the debts.
  3. The income change will continue for a significant or indefinite length of time.

Bankruptcy Liquidation

One possible bankruptcy filing is a Chapter 7 Bankruptcy, which involves a liquidation of your assets. This option is used for borrowers who do not have an income to continue repaying the loans and instead must gain an income through selling possessions. All assets may be subject to sale by the court, and you will not have control over when your assets are seized or in what order your debts are repaid. Student debts are senior debts, particularly if they are federal loan debts, so they will be repaid at the highest priority. 

Bankruptcy Payment Structuring

You may have a moderate income that could permit you to repay your student debts if they were significantly restructured. For example, some of the finance charges could be removed, the terms could be lengthened and the monthly payments could be shortened. If you believe you can make payments with these changes, you may be a candidate for a Chapter 13 Bankruptcy filing, which is a restructuring of debts. You will have the chance to submit a payment plan you feel would work for your situation to the court. The court allows your lenders to respond to this plan before ultimately deciding the best option to continue with loan repayment.


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