MAYBE You Don't HAVE to repay that Student Loan in Bankruptcy After All

If you are facing a personal bankruptcy and want to get rid of repaying your student loan, you will most likely be disappointed. But it is not entirely impossible. As of this writing in mid- February 2013, the Fairness for Struggling Students Act of 2013 has not been passed into law. As the bankruptcy laws stand currently, student loans are almost impossible to eliminate in bankruptcy, with no distinction between private student loans and federal student loans. Most people will tell you that you simply cannot eliminate student loans in bankruptcy.  Not true. It is very difficult but can be done in limited circumstances.

A person who files for bankruptcy must list all of their debt, including student loans- despite the fact that they cannot be discharged without successfully taking an additional step. Most people do not try to take the additional step necessary because it takes time, costs money above and beyond what is normally charged for a bankruptcy, and may not be successful.  A debtor must convince the bankruptcy judge that he or she would face an "undue hardship" if the loan has to be repaid. You might be thinking "of course it will cause an undue hardship- I wouldn't be filing for bankruptcy if I weren't in a tough spot", right? I hear you. Stay with me. By undue hardship, you don't just have to show that it would be hard to repay your student loan or that you have better things to do with your money, but you have to prove : 1) If you were to repay the loan, it would prevent you from maintaining a minimum standard of living 2) during the time period in which you are supposed to repay the student loan, it would continue to be difficult to maintain your  minimum standard of living 3) you have made a good faith effort in the past to repay your loan -typically the past 5 years or so will be scrutinized.

If you think that repaying your student loans even after you discharge other debt in bankruptcy would truly be catastrophic, beyond just having to tighten the belt and carefully budget, discuss it with your bankruptcy attorney.

Carol O'Connor Cadiz is a bankruptcy attorney in the Chicago suburbs, with offices in Itasca and Schaumburg. If you are considering a personal bankruptcy, call 630 250-8813 for a candid, confidential discussion.

 

 

Carol O'Connor Cadiz
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Attorney & Owner at O'Connor Cadiz Law: Bankruptcy, Injury, Real Estate & Mediation