Escape the Burden of Student Loan Debt
Dealing with student loan debt can be burdensome for people experiencing money problems. Many lives are affected by the weight of educational loans, and finding ways to deal with it is crucial. Some might consider filing for bankruptcy, a helpful legal process when debt becomes too much. In this guide about student loan bankruptcy, we will look into the critical things to know, like the rules and exceptions.
We will discuss the different types of bankruptcy and the strict criteria for dealing with student loan debt. We aim to give a clear picture to help people decide what to do about their money situation. Whether you want to know if student loans can be removed or if there are other ways to get relief, this guide is here to explain the details of student loan bankruptcy.
Short Summary:
- Bankruptcy is a legal process offering relief to individuals or businesses overwhelmed by debt, involving a court-supervised assessment of assets and liabilities.
- Chapter 7 involves liquidation, selling non-exempt assets to repay creditors, and potentially discharging certain debts. On the other hand, Chapter 13 requires a debtor to create a repayment plan over three to five years, retaining assets and discharging eligible debts.
- Student loans assist in covering higher education costs, and federal and private loans offer different repayment options.
- To discharge student loans through bankruptcy is challenging due to strict rules against canceling educational debt, emphasizing exploring alternative solutions.
- Undue hardship exception allows discharge if severe financial problems are demonstrated through tests like the Brunner Test.
- Different regions may consider the totality of circumstances, leading to variations in proving undue hardship.
- Student loans must be repaid if hardship is not proven in Chapter 7. However, Chapter 13 offers alternatives, including debt elimination or a payment plan based on income, stopping creditor calls and threats.
What is Bankruptcy?
Bankruptcy is a legal process designed to help individuals or businesses struggling with overwhelming debt find relief and obtain a fresh financial start. It involves a court-supervised procedure where a debtor’s assets and liabilities are assessed, and a plan is devised to manage the repayment of creditors or, in some cases, to discharge certain debts entirely.
Types of Bankruptcy
There are different types of bankruptcy, but the two most common for individuals are Chapter 7 and Chapter 13:
- Chapter 7 Bankruptcy (Liquidation) – Chapter 7 involves the sale of the debtor’s non-exempt assets to repay creditors. Certain types of debts may be discharged, providing a clean slate for the debtor. Not all assets are liquidated, and certain exemptions may protect essential property.
- Chapter 13 Bankruptcy (Reorganization) – Chapter 13 requires the debtor to create a repayment plan to repay creditors over a specified period, usually three to five years. The debtor retains their assets and arranges a manageable repayment schedule based on income and expenses. At the end of the repayment period, remaining eligible debts may be discharged.
Bankruptcy is a complex legal process with various rules and regulations, and the specific details can vary depending on individual circumstances and the type of bankruptcy filed. It is often considered a last resort for individuals facing severe financial challenges, and its implications can significantly impact credit history and financial standing.
What are Student Loans?
Student loans are financial aid provided to individuals to cover the costs associated with higher education, including tuition, fees, books, and living expenses. These loans are designed specifically to assist students and their families in meeting the financial demands of education when personal or family resources may be insufficient.
What are the Types of Student Loans?
Below are the following types of student loans:
- Federal Student Loans are loans from the government that are more flexible when it comes to paying them back. They usually have extra safeguards for borrowers and options like repayment plans based on income.
Federal loans also include the following:
- Direct Subsidized and Unsubsidized Loans: Subsidized loans go to undergraduates with financial need, and the government covers the interest while the student is in school. Unsubsidized loans are for undergrad and grad students, not based on financial need, and the borrower is responsible for all interest.
- PLUS Loans: PLUS loans are also available to parents of undergraduate or graduate students who need a credit check.
- Perkins Loans: Perkins loans are low-interest federal loans for undergrad and grad students with significant financial needs.
- Private Student Loans are loans from banks or credit unions, not the government. They might not come with all the good things federal loans have for borrowers. The details, like interest rates and when you pay back, can differ. When you apply, they usually look at your credit history and income.
Do Student Loans Easily Discharge in Bankruptcy?
Getting rid of student loans through bankruptcy is usually not easy. There are strict rules against canceling educational debt, so looking at other ways to help is critical. This information lays the foundation for understanding student loans and bankruptcy to help people in Washington prepare for the challenges they might face when considering these money strategies.
How to Prove a Student Loan Discharge in Bankruptcy Court
You must show you do not make enough money to prove you cannot afford to repay your student loans.
Undue Hardship Exception
There is a special case called the undue hardship exception. To qualify, you must demonstrate serious money problems, which might let you get rid of your loans.
Here are the conditions:
- Brunner Test: This is the main way to prove undue hardship. It checks if you cannot maintain a basic lifestyle, face ongoing money problems, and genuinely try to repay the loans.
- Inability to Maintain a Basic Standard of Living: You cannot afford a simple life while repaying the loans.
- Persistence of Financial Hardship: Money troubles are expected to last a long time, even during the repayment period.
- Good Faith Efforts: You tried to repay the loans in good faith.
- Different Rules in Some Places
- Totality of Circumstances: In some areas, they look at everything, not just the Brunner test. They consider various factors to make decisions.
- Regional Differences: The rules for proving undue hardship can vary depending on your location. That leads to variations in how bankruptcy courts in different regions handle cases where people want to get rid of their student loans.
What if I Cannot Get Rid of My Student Loans Through Bankruptcy?
You will still need to pay for your student loans in Chapter 7 bankruptcy if you cannot prove that paying them back would be too challenging. However, in Chapter 13 bankruptcy, things can be different.
If you are struggling with bills like medical expenses or credit card debt, you can either get rid of these debts or set up a payment plan based on your income. Even though you will still have to handle any remaining balance after the payment period, this process stops calls from creditors, wage garnishment, and threats of home foreclosure. Simply put, bankruptcy helps by dealing with other debts, so you can focus more on repaying student loans.
Call our Bankruptcy Attorneys to Guide You to a Student Debt-Free Future in Washington!
Are you facing the overwhelming challenge of student loan bankruptcy and wondering if bankruptcy is the solution? At McBurney Law, we understand those complications and frustrations. If proving undue hardship seems like an uphill battle, our legal team can guide you through the nuances of Chapter 13 bankruptcy, providing relief from other debts like medical bills and credit card balances.
At McBurney Law, we pride ourselves on helping clients find relief and rebuild their financial well-being. Our experienced attorneys will work with you to explore every option available, ensuring your unique circumstances are considered. Let us help you create a manageable payment plan based on your income, shielding you from creditor calls, wage garnishment, and home foreclosure threats.
Break free from the financial burden—choose McBurney Law for strategic legal assistance and a path toward a brighter financial future. Take control of your financial journey today!
Contact us now to schedule a consultation, and let us guide you through the path to financial recovery with personalized legal solutions tailored to your needs.
Aside from our office in Adams County (Othello, Moses Lake, Ritzville), Washington, we also offer bankruptcy, criminal defense, estate planning, and family law legal services in our other offices in Yakima County (Yakima, Sunnyside, Grandview, Mabton, Toppenish, Selah), and Spokane County (Spokane).
