Can Bankruptcy Ever Spell R-e-l-i-e-f From Student Loans?

February 22, 2008 7:10 am Published by

Not a day goes by that someone doesn’t ask me whether filing bankruptcy can provide any relief for them from student loans that never seem to get paid down.  Since people know how involved I have been with revising the bankruptcy laws of the state of Indiana and with dealing with thousands of debtors every year, it’s natural that people would turn to me with questions about student loan debt.

While I’d love to be able to give a more hopeful answer, the truth is that, almost without exception, student loans are not dischargeable by the bankruptcy courts.  The U.S. Bankruptcy Code provides that the only time student loans can be discharged is when the loans impose an “undue hardship”.  Essentially the courts interpret this to mean a person would need to prove permanent and total disability for the court to recognize “undue hardship”.

So, should you rule out declaring bankruptcy if a big part of your  debt consists of student loans?  Not at all.  When you file bankruptcy, the student loans won’t be discharged, nor will the interest stop accruing on those loans.  But what will happen is this – the people pursuing you to collect on your overdue student loans will be put “on hold” for up to five years.  In the bankruptcy process, some of your other debts might be discharged, buying you time to pursue your career and get back on your feet financially.  Without being hounded by phone calls from collectors, you will have a better chance of catching up to the point where you can resume payments on the student loans. 

FacebookTwitterGoogle+Share

Categorised in:

This post was written by Mark Zuckerberg

Comments are closed here.