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Student Loans And Bankruptcy
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Article on Student Loans And Bankruptcy
Student loans form a significant part of the average person’s debt in the U.S., and, just like all other major forms of debt, there is a chunk of the population that is unable to pay back consistently. In this circumstance, the relationship between student loans and bankruptcy is a pertinent subject for most people.
Bankruptcy not Automatic Solution
The first thing that needs to be known about student loans and bankruptcy is that student loans are not automatically erased when someone files for bankruptcy. The cancellation, or discharge, of student loans requires that the bankrupt person file a separate petition at the court, and prove to the judge that they are facing an ‘undue hardship’ in paying back the loan.
Proving Undue Hardship
In order to prove undue hardship, anyone must be prepared to give a satisfactory explanation on three specific matters. First, their current financial situation is such that they and their dependents will be unable to maintain even minimum standards of living, if they keep paying back their student loan. Second, due to additional circumstances, this current situation is expected to last well into the future. Finally, they must display that they have tried in all earnestness to pay back the student loan. If the judge is satisfied, the student loan will be discharged on grounds of undue hardship.
The Difficulty
It is important to know that as of October 17, 2005, private and government educational loans are treated the same, when it comes to bankruptcy and loan discharge policies in the U.S. The unfortunate fact in the student loans and bankruptcy issue is that it is extremely difficult to prove undue hardship, unless someone is facing some form of physical or mental disability that is preventing them from finding useful employment, or there is some other very compelling circumstance placing an unusual strain on their finances, and that is expected to continue into the future.
Other Alternatives
Even though winning ‘undue hardship’ discharges are difficult, there are other ways to ease the immediate burden of your student loans. You could consult your attorney about the possibility of filing for a chapter 13 bankruptcy. Under this proceeding, someone’s entire financial debts, including student loans, are consolidated, and a relatively easier payment schedule is set for a period of 3-5 years. Creditors are also not allowed to pursue the concerned person for collections. After the stipulated period, the remainder of the loans needs to be paid back. The other possibility is to work out an easier repayment plan. Under certain circumstances and policies, creditors will be willing to comply.
To sum up, it is very important to hire the services of a knowledgeable attorney who will satisfy all your relevant queries in the matter of student loans and bankruptcy, before you decide to start any bankruptcy proceedings. In normal circumstances, it is next to impossible to win cancellations against student loans, and much more realistic to expect some form of immediate relief.
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